VAT compliance: Insights into RR No. 1-2026

The landscape of Value-Added Tax (VAT) for Registered Business Enterprises (RBEs) has undergone a significant recalibration. With the issuance of Revenue Regulations (RR) No. 1-2026, the Bureau of Internal Revenue (BIR) has refined the framework initially established by RR No. 9-2025. This latest issuance is not merely a set of technical corrections; it represents a strategic adjustment to the rules governing local sales by RBEs under the National Internal Revenue Code, as amended by Republic Act No. 12066.

BRIDGING THE GAP: FROM RR 9-2025 TO RR 1-2026
RR No. 9-2025 introduced a paradigm shift by mandating that local sales of goods and services by RBEs be subject to 12% VAT, regardless of their income tax incentive regime or location. Crucially, it shifted the liability to pay and remit this VAT to the buyer.

Recognizing the administrative and financial complexities this created, RR No. 1-2026 amends Sections 3, 4, and 7 of the prior regulations. The new rules seek to clarify filing procedures, offer registration flexibility, and, perhaps most importantly, prevent the “accumulation” of input VAT for certain enterprises.

KEY INSIGHTS AND STRATEGIC OPPORTUNITIES
While many may focus solely on the extended deadlines for the e-invoicing requirement, several deeper insights and opportunities emerge from RR No. 1-2026:

Optional VAT registration as a shield: RBEs under the 5% Special Corporate Income Tax (SCIT) or Gross Income Earned (GIE) regime now have the option to register as VAT taxpayers specifically for their local sales. This is a strategic lever: it allows these enterprises to participate in the VAT chain without losing their existing fiscal incentives, such as VAT zero-rating on local purchases or exemptions on imports directly attributable to their registered activities.

An RBE dealing heavily with VAT-registered domestic customers may choose VAT registration to:

• Simplify invoicing;

• Avoid buyer-side remittance complexities; and

• Enhance commercial attractiveness to customers needing input VAT credits.

This transforms VAT registration from a compliance burden into a commercial strategy decision.

Preventing ‘stuck’ input VAT: A major relief is provided to VAT-registered Domestic Market Enterprises (DMEs). Previously, the requirement for the buyer to remit VAT could lead to accumulated, non-refundable input VAT for the seller. RR No. 1-2026 excludes these RBE-sellers from the “buyer-remit” rule, allowing them to file and pay VAT as regular taxpayers and thus utilize their input VAT credits effectively.

Without this clarification, DMEs would have suffered accumulating input VAT due to buyer-remittance mechanics under Section 295(D). RR 1-2026 prevents cascading VAT inefficiencies and protects the neutrality of the VAT system. This is a technical correction with macroeconomic significance.

Operational flexibility in bulk sales: For transactions involving bulk shipments from ecozones or freeports covered by multiple invoices, buyers can now opt for a single VAT payment via BIR Form No. 0605. This reduces the administrative burden of per-transaction filing, provided a list of all covered invoices is presented to the Bureau of Customs.

Extended system grace period: The deadline for reconfiguring invoicing systems (e.g., CAS, POS) to use the term “VAT on Local Sales” has been extended to Dec. 31, 2026. This provides businesses with ample lead time to ensure technical compliance without the immediate threat of penalties.

Governance and audit readiness: The amendment increases traceability, as the VAT must be paid before goods are released and the documentary trail becomes more transaction-specific.

Expect audit analytics to increasingly match:

• Invoices;

• BIR Form 0605 filings; and,

• Customs release data.

ENHANCING ADMINISTRATION AND COMPLIANCE
Ultimately, RR No. 1-2026 ultimately strengthens tax administration in three critical ways:

• Improves revenue certainty – By requiring VAT payment prior to ecozone release, leakage risk is minimized. VAT collection shifts from post-transaction enforcement to pre-release compliance.

• Enhances system alignment – The regulation harmonizes investment incentive rules, VAT mechanics, and Customs procedures.

Administrative coherence reduces interpretative disputes.

• Encourages voluntary compliance – The optional VAT registration feature reflects a modern compliance philosophy, incentivizing structured participation rather than imposing rigid mandates. The extended system reconfiguration deadline also demonstrates regulatory flexibility, building trust rather than fear-based enforcement.

The transition from RR 9-2025 to RR 1-2026 underscores the BIR’s commitment to addressing taxpayer concerns. By identifying specific scenarios, such as those involving DMEs or bulk shipments, where the original rules were “administratively unfeasible” or financially detrimental, the BIR has shown a commendable responsiveness to taxpayer feedback.

For the taxpayer, these amendments improve compliance by replacing rigid mandates with flexible options. The three-year lock-in period for optional VAT registration ensures stability in the tax base while allowing enterprises to align their tax status with their actual business models. Ultimately, by refining the “VAT on Local Sales” mechanism, the BIR is fostering a more transparent and equitable tax environment that balances the government’s need for revenue with the operational realities of the modern enterprise.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Kim M. Aranas is a director from the Tax Advisory & Compliance practice area of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.