April 15 is the deadline for the most important type of tax payment — the annual filing of income tax returns (ITRs). Almost all registered taxpayers are required to pay this tax, with only a few exceptions. For the government, the income tax is where the bulk of the Bureau of Internal Revenue’s (BIR) collections come from.
Given that “April 15” is a deadline, it is not necessary to wait until the last day to handle your tax filings. In fact, it is usually better to file your returns and pay the taxes due as soon as possible. The BIR might reject your filing if you used wrong and outdated forms, or if you failed to submit attachments.
If you had waited for the last minute before filing your returns, then you may not have time to correct them.
It is especially important to learn about ITRs now in light of the changes prescribed by TRAIN Law. Under the tax reform, new rates, forms, and deadlines were implemented. For the Annual Filing of ITRs, only the rates and forms were affected.
BIR FORM NO. 1701A
The first of the Annual ITR forms to be updated was BIR Form No. 1701A. Disseminated under Revenue Memorandum Circular (RMC) No. 17-2019, the new form partially replaces BIR Form No. 1701.
Unlike the old BIR Form No. 1701, it does not cover all self-employed and professionals. Only taxpayers availing the 8% rate and taxpayers availing the Optional Standard Deductions under the graduated rates should use 1701A. Notably, it also does not cover mixed income earners.
BIR FORM NO. 1700
A few days after issuing RMC 17-2019, the BIR released another set of new forms under RMC 19-2019. Among these new forms is BIR Form No. 1700 or the Annual ITR for Compensation Income Earners.
Generally, employers take care of filing the ITRs of their employees under substituted filing. However, certain employees are not qualified for substituted filing and, as such, are still required to file their own returns. For these types of employees, they are now required to use the new BIR Form No. 1700.
BIR FORM NO. 1702-RT
Another form released under RMC 19-2019 is BIR Form No. 1702-RT. The form is used by corporations, partnerships, and other non-individuals subjected to regular income tax rates. The new form cuts down the pages in half, retaining only four pages instead of the previous eight.
BIR FORM NO. 1702-EX
For tax-exempt corporations, partnerships, or non-individuals, the BIR has also issued the new form for BIR Form No. 1702-EX. This was also released under RMC 19-2019 alongside BIR Forms No. 1700 and 1702-RT.
The form is only three pages long, cut down from seven pages.
BIR FORM NO. 1701
For self-employed and professionals not covered by 1701A, the BIR has released an updated BIR Form No. 1701. As disseminated under RMC 37-2019, BIR Form No. 1701 will cover individuals (including mixed income earners), estates and trusts.
Note that BIR Form No. 1701A is different from BIR Form No. 1701 and covers different types of taxpayers. Self-employed and professionals need to make sure that they are using the right form for annual ITRs.
Individuals availing neither the Optional Standard Deduction nor the 8% Income Tax should use this form, not 1701A. This means, for example, individual taxpayers availing itemized deductions.
EASE OF PAYING TAXES
Making tax returns simpler is not just about making tax compliance easier. Improving the ease of paying taxes can affect a country’s business competitiveness and even improve its revenue collections.
One of the most notable studies that measures the ease of paying taxes is the World Bank’s Doing Business report. In its latest release, the Philippines – despite dropping in the overall rank – increased its score on Paying Taxes. From a score of 69.27 in 2018, the Philippines raised its score to 71.80 in 2019.
As might be surmised, improving the scores here could attract more entrepreneurs to invest in the country.
The other potential effect of improving the ease of paying taxes is broadening the taxpayer base. Shortening tax returns and making sure that tax compliance is easy can encourage taxpayers to comply. With a broader taxpayer base comes more taxpayers to collect from and, therefore, higher revenues.
As of the BIR’s latest annual report, there are only 19 million registered taxpayers despite having a working population of over 40 million. If these taxpayers were encouraged to comply and pay their taxes, the government could see an increase in its revenue collections.
However, shortening tax returns is not the key to improving the ease of paying taxes. To actually make a significant impact, the tax system needs to be modernized.
For example, Singapore, one of the leading scorers in the Doing Business report, conducts almost its entire tax compliance electronically. As of 2017, 100% of Singapore’s Value-Added Tax returns, 97% of Personal ITRs, and 69% of Corporate ITRs are filed electronically.
Already, the BIR has taken steps toward this by initiating the Electronic Tax Software Providers Certification System. Under this new initiative, the BIR authorizes the development of third-party software for the automation of tax compliance. Applications, such as the TaxWhizPH mobile app, will enable their users to file their returns anytime and anywhere.
The TaxWhizPH mobile app is free to use and can be downloaded at the Play Store for Android users and App Store for iOS users.
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.
Raymond A. Abrea is a member of the MAP Tax Committee and one of the 2017 Outstanding Young Persons of the World, a Move Awards 2016 Digital Mover, one of the 2015 The Outstanding Young Men of the Philippines (TOYM), an Asia CEO Young Leader of the Year, and Founding President of the Asian Consulting Group (ACG) and the Center for Strategic Reforms of the Philippines (CSR Philippines).