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Implementing the Amendments Introduced by the EOPTA on the Relevant Provisions of Title IV – Value Added Tax (VAT) and Title V – Percentage Tax of the National Internal Revenue Code of 1997, as amended (Tax Code)

On 11 April 2024, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulations (“RR”) No. 3-2024 which implements the amendments on value-added tax (“VAT”) and percentage tax as introduced by Republic Act No. 11976 otherwise known as “Ease of Paying Taxes Act” (“EOPTA”).

The salient changes are as follows:

RR No. 16-2005, as amended

RR No. 3-2024

Taxable Base for VAT

VAT on sales of goods is based on gross sales, while VAT on sales of services is based on gross receipts.

The EOPTA adopts the accrual basis of recognizing sales for both sales of goods and services. Hence, the VAT on sales of goods and services as well as percentage tax will be based on gross sales, resulting in a shift from cash to an accrual basis of accounting.

Supporting Document

The sale or purchase of goods shall be substantiated with VAT invoice, while the sale or purchase of services shall be substantiated with VAT official receipts.

The EOPTA mandates a single document for both sales of goods and services. Hence, all reference to sales/commercial invoices or official receipts shall be referred to as invoices.

Allowable Deduction from Gross Selling Price (for sale of service)

No provision

The following shall be allowed as deductions from gross sales:

a. The value of services rendered for which allowances were granted by a VAT-registered person during the quarter in which a refund is made or a credit memorandum refund is issued.

b. A sales discount granted and indicated in the invoice at the time of the sale and the grant of which is not dependent upon the happening of a future event.

Specific Amendments to Tax Credits

Likewise, a new provision was added wherein a seller of goods or services may deduct the output VAT on uncollected receivables from its output VAT in the next quarter after the lapse of the agreed-upon period to pay. The following requisites must be present to be entitled to VAT credit:

  1. The sale or exchange took place after the effectivity of RR No. 3-2024;
  2. The sale is on credit or account;
  3. There is a written agreement on the period to pay the receivables (i.e. credit term is indicated in the invoice or any document showing the credit term);
  4. The VAT is separately shown in the invoice;
  5. The sale is specifically reported in the Summary List of Sales covering the period when the sale was made and not reported as part of “various” sales;
  6. The seller declared in the tax return the corresponding output VAT indicated in the invoice within the period prescribed under the existing rules;
  7. The period agreed upon, whether extended or not, has elapsed; and
  8. The VAT component of the uncollected receivable was not claimed as a deduction from gross income.

Billed but Uncollected Sale of Services
For outstanding receivables on services on accounts that are rendered before the effectivity of RR No. 3-2024, the corresponding output VAT shall be declared once it has been collected. In case of collection, the sales and corresponding output VAT therefrom shall be declared in the quarterly VAT return when the collection was made and shall be supported with an invoice.