Employment Tax
Philippines | Ease of paying taxes (EOPT) act introduces key administrative tax reforms
Summary
On 5 January 2024, the EOPT (Republic Act No. 11976) was signed into law. The EOPT provides important amendments to the Philippine Tax Code, which are geared to safeguard taxpayer rights and welfare, to modernise tax administration with mechanisms that encourage easy and less costly compliance, to update the tax system and to enact policies appropriate for different types of taxpayers.
While the EOPT took effect on 22 January 2024, the implementing rules and regulations (IRR) are expected to be issued on or before the end of April 2024.
Further details are outlined below.
The Detail
| Key aspects of the EOPT | Historical context | What this means? |
| ➢ Lodge-and-pay anywhere mechanism
Taxpayers shall be able to file tax returns and pay corresponding taxes, either electronically or manually, to any district office of the Philippine Tax Authority (Bureau of Internal Revenue or BIR) or any authorised agent bank (AAB) of the BIR or through a tax software provider. In relation to this, the 25% surcharge would no longer be imposed on account of filing and payment in a wrong venue. | Even with existing electronic filing and payment facilities, taxpayers were still required to file and pay tax returns only to specific BIR office where the taxpayer is registered. If filing/payment is made in the wrong venue, a 25% surcharge would be assessed. | This is a welcome development dispensing the requirement to physically lodge returns and remit taxes within a specified location.
We would expect that the BIR will still require taxpayers to indicate the specific BIR office/jurisdiction where they are registered for monitoring/crediting purposes. |
| ➢ Filing exemption of OCWs/OFWs
Overseas Contract Workers (OCWs) / Overseas Filipino Workers (OFWs) who work and derive income solely outside the Philippines are exempted from filing income tax returns. | Under the Philippine Tax Code, Filipinos working and deriving income from abroad as OCWs/OFWs are subject to tax only on income derived from within the Philippines. | This is not entirely new, but the EOPT provides an explicit exemption to OCWs/OFWs from the tax filing obligation.
Nonetheless, they may still be taxable if they derive income from within the Philippines. |
| ➢ Timing of withholding on income payments (other than compensation) when payable
The obligation to deduct and withhold tax shall now arise at the time when the income becomes payable. The definition of the term “payable” has not been qualified. Under existing rules, however, “payable” refers to the date an income becomes due, demandable or legally enforceable. | Prior to EOPT, the responsibility to deduct and withhold tax arises at the time when an income payment is paid or becomes payable, or when the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, whichever comes first. | While this intends to provide a more simplified approach for withholding, this may potentially create complexity on certain income payments. We would expect that the BIR will clarify and provide more guidelines in the IRR and related issuances. |
| ➢ Withholding tax is no longer a requirement to claim deductible expenses
The withholding of tax on income payments (expenses) being a prerequisite to a claim deduction has been removed. | Prior to EOPT, a deduction shall be allowed provided the required withholding tax is remitted/settled to BIR (even if such remittance is made belatedly). | On account of the removal of withholding tax requirement, deduction can be claimed for corporate income tax purposes notwithstanding the tax thereon has yet to be withheld/remitted. |
| ➢ Period to refund erroneously paid taxes
A 180-day period is provided for processing refunds of erroneously paid taxes from the date of submission of complete documents. Taxpayers may within 30 days from receipt of denial or after the expiration of 180 day period to appeal BIR’s decision with the Court of Tax Appeals (CTA). | Prior to the EOPT, taxpayers tend to elevate their tax refund cases directly to the CTA in anticipation of denial at the BIR level. | This intends to address delays in processing of refunds and provide a mechanism to exhaust administrative remedies to prevent denial at the CTA level. |
| ➢ Refund of unutilized excess creditable withholding tax
It must be shown that the income payment has been declared part of gross income and the fact of withholding is established. In case of dissolution or cessation of business, application for refund applied for with BIR should be acted upon within 2 years from date of dissolution. | No provision on the period to file a refund for unutilized excess creditable withholding tax. | Submission of proof of actual remittance not a requirement on grant of refund for excess CWT. |
| ➢ 5-year preservation period of books of accounts and other accounting records
All books of accounts shall be preserved for a period of five (5) years from the day following the deadline in filing a return, or from the date of filing the return, whichever is later, for the taxable year when the least entry was made in the book of accounts. | Taxpayers must retain copies of the books of accounts, including other accounting records for a period of ten (10) years, wherein taxpayers are required to retain the hard copies for the first five (5) years. | Wait for the IRR and related tax issuances to further clarify for how long the taxpayers can maintain hard copies and electronic records. |
How we can help
Our team is very much happy to assist you in gaining a deeper understanding of the above. Please contact your Vialto Partners point of contact, or alternatively:
Geraldine-Esguerra Longa
Partner
Raymund Gutib
Director
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Further information on Vialto Partners can be found here: www.vialtopartners.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
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