It’s the most wonderful time of the year; not only do we have Christmas and New Year to look forward to, it’s also time to explore our music year in review via Spotify Wrapped 2024! Who else looked forward eagerly to our respective Wrapped stories? I believe we’re all excited for the music app to encapsulate our favorite artists, genres, and songs.
“You listened to 13,463 minutes and played over 478 songs this year,” according to my own summary. These statements dominated the first two weeks of December. How was your own music evolution? Did you start the year with some “Pink Pilates Princess Strut Pop” and transition to “After Hours Pop” or “Heatwave Beach Reggaeton” in July? How about your top artists and genres? Are they what you expected after locking in your music preferences?
Just as Spotify wrapped up the evolution of our music taste for the year, let’s also take a moment to look back at the ever-changing tax landscape as we review several important regulations and clarifications issued by the BIR this year, primarily focused on the implementation of the Ease of Paying Taxes (EoPT) Act.”
EASE OF PAYING TAXES (EOPT) ACT
The EoPT Act is a significant tax reform law aimed at improving the ease and efficiency of the tax compliance process for businesses and individuals. Below is a summary of the key highlights of the EoPT Act:
• Simplification of tax filing and payment procedures
• Removal of certain documentary requirements when substantiating invoices for the purpose of claiming input VAT
• Enhancements to taxpayer services
• Introduction of electronic tax payments to remit taxes, promoting cashless transactions and reducing errors in manual processes
• Modernization of tax systems, including the automation of tax assessments, collections, and the enforcement of tax compliance
• Tax rate reductions for small and medium enterprises (SMEs) in an effort to promote business growth and sustainability
• Stricter penalties for non-compliance with tax filing deadlines or failure to use the digital systems established under the law
• Strengthened Taxpayer Education Programs to ensure that businesses and individuals are aware of their tax obligations and the available digital tools for compliance
• Revised Taxpayer Identification System (Small, Medium, and Large Taxpayers)
These highlights reflect the main objectives of the EoPT Act, which are to streamline and simplify tax compliance, enhance taxpayer services, and modernize the tax collection system to make it more efficient and accessible for businesses and individuals.
VAT ON DIGITAL SERVICES
The VAT on digital services is a tax imposed on digital services that are supplied over the internet or other electronic networks with the use of information technology, where the supply of the service is essentially automated. This includes those digital services provided by non-resident digital service providers (NDSPs) to consumers in the Philippines. The law aims to equalize the tax obligation of digital service providers located overseas, particularly those engaged in entertainment, content creation, marketplaces, and cloud services. To meet this objective, the law imposes 12% value-added tax (VAT) on digital service providers (DSPs).
The law also introduced the registration with the Bureau of Internal Revenue (BIR) of NDSPs who provide digital services consumed by Philippine customers. If the customers of NDSPs are VAT-registered, the customer is liable to withhold and remit the VAT via reverse charging mechanism (withholding VAT) to the BIR. On the other hand, if the customers are not VAT-registered, the NDSPs have an obligation to remit the 12% VAT on their digital services.
This move aims to ensure fairness in the tax system, improve revenue collection as the government targets additional billions in revenue over the next five years, and address the growing digital economy.
CREATE MORE
The CREATE MORE Act (Corporate Recovery and Tax Incentives for Enterprises – Maximize Opportunities for Reinvigorating the Economy) is a continuation of the tax reforms introduced under the CREATE Act (Corporate Recovery and Tax Incentives for Enterprises Act). The law seeks to further promote economic growth, improve tax incentives, and encourage investments by enhancing the tax system for businesses and industries. Below is a summary of the key highlights of the CREATE MORE Act:
• Enhanced tax incentives for registered business enterprises
• Reduction in Corporate Income Tax Rates
• Incentive rationalization and streamlining
• Further VAT exemptions
• Enhanced tax administration on improving tax collection efficiency and automation of tax filing
• Tax relief for new and expanding businesses
• Strengthening incentive-granting agencies
• Support for MSMEs (Micro, Small, and Medium Enterprises)
• A more competitive business environment by encouraging foreign investment
The CREATE MORE Act builds on the reforms of the CREATE Act, offering enhanced tax incentives, reducing the corporate income tax rate, rationalizing tax breaks, and simplifying tax administration. It aims to further drive investment and boost economic recovery.
BIR YEAR-END TAX COMPLIANCE REMINDERS
As the end of the year approaches, taxpayers need to be mindful of several key compliance requirements set by the BIR. Here are some important reminders for 2024:
1. Submission of Annual Information Returns and Alphalists, together with the Annual Alpha List of Employees/Payees
• BIR Form 1604-C (Compensation) and the Annual Alphalist of Employees must be submitted by Jan. 31.
• BIR Form 1604-F (Final Withholding Taxes) and the Alphalist of Payees are also due on Jan. 31.
• BIR Form 1604-E (Expanded Withholding Taxes) and the Alphalist of Payees need to be filed by March 1, 2025.
2. Submission of Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316)
Employers must provide BIR Form 2316, which details the income earned and taxes withheld for each employee, by Jan. 31. Signed copies must be submitted to the BIR by Feb. 28.
3. Submission of Inventory List and other reporting requirements
Taxpayers maintaining inventory are required to submit soft copies of the annual inventory list and applicable schedules, accompanied by a notarized and signed sworn declaration, within 30 days following the close of the taxable year.
Taxpayers are advised to prepare a reconciliation of the inventory list and other applicable schedules with their records so that they can explain any differences to the BIR upon tax audit.
4. Submission of Books of Account
Depending on the taxpayers’ registered books of account, the following shall be observed for subsequent registration:
a) Manual Books of Account
• New businesses must register their manual books of account before the deadline of the first quarterly or annual income tax return, whichever is earlier.
• Existing businesses must register new sets of manual books before fully consuming the pages of previously registered books.
Further, please note that the registration does not need to be completed annually unless the old set of books is fully consumed.
b) Loose-Leaf Books of Account
These must be submitted annually, within 15 days after the end of each taxable year or within 15 days from the closure of business operations.
c) Computerized Accounting System (CAS)
These must be submitted annually, within 30 days from the end of each taxable year or from the closure of business operations.
Further, in compliance with the EoPT Act, the BIR set a deadline of Dec. 31, 2024, for taxpayers to update their CAS to comply with the latest changes, including the issuance of invoices and generation of necessary reports in the format prescribed by the BIR.
In 2024, all books of account must be registered online via the BIR’s Online Registration and Update System (ORUS). The registration process now involves generating a QR code, which serves as proof of registration instead of manual stamping. The QR code includes various taxpayer details, such as TIN, registered name, and type of book.
These updates aim to streamline the registration process and ensure compliance with the BIR regulations.
In conclusion, we can say that the BIR’s incremental actions in 2024 include a variety of impactful issuances aimed at modernizing the tax system, improving compliance, and addressing the challenges of a growing digital economy. Taxpayers have felt a substantial improvement. As we look forward to 2025, we expect that the BIR continues to build rapport on the significant advancements and reforms it achieved this year.
Neymhel Marie I. Obedencio is a senior in charge of the Tax Advisory & Compliance Practice Area at the Cebu office of P&A Grant Thornton.
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