Republic Act No. 11976: Ease of Paying Taxes Act

On 05 January 2024, Republic Act (“R.A.”) No. 11976, otherwise known as the Ease of Paying Taxes Act “EoPTA”), was enacted. The law introduced modern tax reforms through various amendments to the National Internal Revenue Code (“NIRC”). Among the salient changes in the EoPTA are the following: 

1. Classification of Taxpayers
   
   

   For purposes of responsive tax administration, the EoPTA classifies taxpayers depending on their gross sales, as follows:

   • Micro taxpayers – those with gross sales of less than PHP3,000,000.00;
   • Small taxpayers – those with gross sales of PHP3,000,000.00 to less than PHP20,000,000.00;
   • Medium taxpayers – those with gross sales of PHP20,000,000.00 to less than PHP1,000,000,000.00; and
   • Large taxpayers – those with gross sales of PHP1,000,000,000.00 and above. 
   
   
2. Tax Withholding 
   
   
   • The EoPTA repealed Section 34(K) of the NIRC which requires the withholding of the applicable taxes for deductibility of the expenses from gross income. 
   • Pursuant to the EoPTA, the obligation to deduct and withhold tax shall arise at the time the income has become payable. Per the previous rules, the obligation of the income payor to deduct and withhold tax arises at the time an income is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, whichever comes first.  
   
   
3. Pay and File Anywhere
   
   

   Under the EoPTA, tax returns may be filed and the tax due thereon may be paid, either electronically or manually, with any authorized agent bank (“AAB”), Revenue District Office (“RDO”) through Revenue Collection Officer, or any authorized tax software provider. The previous law and rules which require that certain returns be filed with the RDOs where the taxpayers are registered and that the taxes due thereon be paid in the AABs within the jurisdiction of the RDOs have been repealed. Relatively, the EoPTA removed the 25% surcharge on wrong venue filing.    

4. Value-Added Tax Rules and Invoicing Requirements
   
   
   • The EoPTA provides a uniform value-added tax (“VAT”) tax base (i.e., gross sales) and documentation (i.e., VAT invoice) for all transactions, whether involving sale of goods or sale of services or lease of properties. Thus, the previous rules on imposition of VAT upon collection and on issuance of official receipt for sale of services/leases of properties are no longer applicable.
   • The EoPTA provides that a seller of goods or services may deduct the output VAT pertaining to uncollected receivables from its output VAT on the next quarter, after the lapse of the agreed upon period to pay if the seller has fully paid the VAT on the transaction and that the VAT component of the uncollected receivables has not been claimed as allowable deduction.
   • As regards invoicing requirements, input VAT claimed on purchases of goods and services shall be substantiated with VAT invoice.  
   • In addition, the EoPTA removed the requirement of indicating the business style, if any, of the purchaser in case of sales amounting to PHP1,000.00 or more. Furthermore, in instances where the VAT invoice lacks the information required, the VAT shall still be allowed to be used as input tax credit if the lacking information do not pertain to the amount of sales, amount of VAT, name, and Taxpayer Identification Number of both the purchaser and issuer/seller, description of goods or nature of services, and the date of the transaction. However, the issuer shall be liable for non-compliance with the invoicing requirements.  
   
   
5. Classification of VAT Refund Claims 
   
   
   • The EoPTA classified VAT refund claims into low-, medium-, and high-risk claims, with the risk classification based on amount of VAT refund claim, tax compliance history, frequency of filing VAT refund claims, among others. 
   • Medium- and high-risk claims shall be subject to audit or other verification processes in accordance with the Bureau of Internal Revenue’s national audit program for the relevant year. 
   
   
6. Tax Base for Percentage Tax
   
   
   • Percentage taxes imposed under certain sections of the Tax Code are now based on gross sales, and not on gross receipts.
   
   
7. Period for Claim for Refund of Erroneously or Illegally Collected Taxes
   
   
   • The 2-year prescriptive period for the recovery of any national internal revenue tax erroneously or illegally assessed or collected or of any penalty collected without authority shall no longer apply to judicial claims for refund. Note that the administrative claim for refund should still be filed within 2 years after the date of payment.   
   • The Commissioner of Internal Revenue (“CIR”) shall act on the claims for refund of erroneously or illegally collected taxes and penalties imposed without authority within 180 days from the date of submission of complete supporting documents.
   • Judicial claim shall be filed if:
     • there is a full or partial denial of the claim for refund or credit by the CIR; or
     • there is a failure on the part of the CIR to act on the claim within the 180-day period. 
     • In case of full or partial denial of the claim for tax refund, or the failure on the part of the CIR to act on the application within the 180-day period, the taxpayer has 30 days from receipt of the decision denying the claim or after the expiration of the 180-day period, to appeal the decision with the Court of Tax Appeals.
   
   
8. Others 
   
   
   • Books of accounts shall be preserved for a period of 5 years (previously, 3 or 10 years).
   • Mandatory issuance of duly registered sales or commercial invoice now only applies for sales valued at PHP500.00 or more (previously, PHP100.00 or more).
   • Removal of payment of annual registration fee of PHP500.00 in taxpayer’s registration. 
   • Reduced penalties to micro and small taxpayers (e.g. 10% surcharge and 50% reduction on the interest rate imposed under Section 249 of the Tax Code).

The full text of R.A. No. 11976 may be accessed here.