Tax Implications and Recording of Deposits/Advances as Part of Gross Receipts (Outright Income) or Claim for Deduction of Expenses (Outright Expense) Received or Paid by Taxpayers Other Than General Professional Partnerships (GPP)

Last February 8, 2013, the Bureau has issued the Revenue Memorandum Circular No. 16-2013 to provide guidelines to observed in accounting and recording of deposits/advances for the payment of the pertinent expenses received by the taxpayers other than General Professional Partnerships (GPP) covered by Revenue memorandum Circular (RMC) No. 89-2012 dated December 28, 2012.

The Policies and Guidelines is with details as follows:

1. Deposits/Advances Part of Gross Receipts

When cash deposits or advances are received by taxpayers other than GPP covered by RMC 89-2012 from the Client/Customer, a corresponding Official Receipt shall be issued. the amount received shall be booked as Income and shall form part of the Gross Receipts and subject to Valued-added Tax (VAT) or Percentage Tax (Gross Receipt Tax), if applicable, and shall in turn be deductible as expense by the Client/Customer provided that it is duly substantiated by Official Receipts pursuant to section 34 (A) (1) of the Tax Code.

2. Claim for Deduction of Expenses

Receipts incurred, paid for and issued in the name of the taxpayer shall be recorded as its own expenses for income tax purposes. These expenses shall be claimed as deductions from gross income provided these are duly substantiated by Official Receipts/Invoices issued by third-party establishments.

3. Income Payment are Subject to Appropriate Withholding Taxes

All Client/Customer shall, upon payment of deposits/advances, withhold tax at the rate prescribed in Revenue Regulations No. (RR) 2-98, as amended, which shall be remitted/paid on or before the 10th day of the following month using the Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) (BIR Form No. 1601E) except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year pursuant to RR 2-98, as amended. For those filing using the Electronic Filing and Payment System (EFPS), the regulations pertaining to EFPS filers shall apply.

4. Issuing Official Receipts for the Deposit and Advances

An Official Receipt shall be issued for every deposit and advances pursuant to Section 113 of the Tax Code. The Official Receipt shall cover the entire amount which the client/Customer pays.

For VAT Taxpayers, the VAT Official Receipt will constitute the Output Tax for taxpayers other than GPP and in turn, the input tax of its client/customer.

Please refer ftp://ftp.bir.gov.ph/webadmin1/pdf/68486RMC%20No%2016-2013.pdf of the PRO-FORMA ENTRIES and full text of the Revenue Memorandum Circular No. 16-2013.

Clarification on the Issuance of Official Receipt as Required by Government Auditors as Evidence of Receipt of Payment for Disbursements

With the numerous questions received by the Bureau regarding the requirement of Government Auditors on the issuance of Official Receipt as the acceptable evidence of receipt of payment for disbursement where the payee/recipient is a dealer, supplier or business establishment required by the BIR to issue the same in the sale/lease of goods or properties, and/or sale of services has issued the Revenue Memorandum Circular No. 2-2014 to clarify or make easier to understand with regards to this matter.

In the memorandum, it is stated that Revenue Regulations No. 18-2012 and Revenue Memorandum Order (RMO) No. 12-2013 in relation to Sections 106, 108, 113 and other pertinent provisions of the National Internal Revenue Code (NIRC), as amended, mandate that:

1. Sales Invoice (Cash or Charge) shall be issued as Principal evidence in the sale of goods and/or properties;

2. Official Receipt shall be issued as Principal evidence in the sale of services and/or lease of properties; and

3. Commercial Receipts/Invoices such as delivery receipts, order slips, purchase orders, provisional receipts, acknowledgment receipts, collection receipts, credit/debit memo, job orders and other similar documents that form part of the accounting records of the taxpayer and/or issued to their customers evidencing delivery, agreement to sell or transfer of goods and services, shall be Supplementary evidence only.

In relation thereto, Section II (H) of RMO No. 12-2013 provides that:

II. POLICIES

H. The buyer of goods on account or credit evidenced by a Charge-Sales Invoice shall be entitled to claim input taxes. Upon collection of the account by the seller, a Collection Receipt (Supplementary Receipt) shall be issued to the client/buyer to evidence the receipt thereof;

Base on the just stated, the Sales Invoice shall serve in lieu of Official Receipt in the sale of goods or properties for evidentiary purposes in terms of audit.

Please refer ftp://ftp.bir.gov.ph/webadmin1/pdf/81011RMC%20No%202-2014.pdf of the full text of the Revenue Memorandum Circular No. 2-2014. 

Persons with Disability shall be Entitled to Claim at Least 20% Discount from the Following Establishments

Republic Act (RA) No. 9442, entitled "An Act Amending Republic Act 7277, Otherwise Known as the Magna Carta for Persons with Disability," relative to the tax privileges of persons with disability and tax incentives for establishments granting sales discount has been implemented by the Bureau under Revenue Regulations No. 1-2009.

Under the regulations, persons with disability shall be entitled to claim at least 20% discount from the following establishments relative to the sale of goods or services for their exclusive use or enjoyment, viz:

a. Hotels and similar lodging establishments and restaurants;

b. Sports and recreation centers;

c. Theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement;

d. All drugstores regarding purchase of medicine;

e. Medical and dental privileges in government and private facilities, such ash but not limited to diagnostic and laboratory fees (e.g., x-rays, computerized tomography scans and blood tests), including professional fees of attending doctors (in private facilities), subject to guidelines to be issued by the Department of Health, in coordination with the Philippine Health Insurance Corporation (Philhealth);

f. Domestic air and sea transportation based on the actual fare except promotional fare. If the promotional fare discount is higher than the 20% discount privilege, the person with disability may choose the promotional fare and should no longer be entitled to the 20% discount privilege; and

g. Land transportation privileges in bus fares such as ordinary, aircon fares and on public railways (such as LRT, MRT, PNR), and such other similar infrastructure that will be constructed, established and operated by public or private entity. Toll fees of skyways and expressways are likewise subject to at least 20% discount, however, this privilege can availed only by a person with disability owning the vehicle.

Please refer ftp://ftp.bir.gov.ph/webadmin1/pdf/44005rr%201-2009.pdf the full text Revenue Regulations No. 1-2009 "Rules and Regulations Implementing Republic Act No. 9442, entitled "An Act Amending Republic Act 7277, Otherwise Known as the Magna Carta for Persons with Disability," Relative to the Tax Privileges of Persons with Disability and Tax Incentives for Establishments Granting Sales Discount.

Submission of Alphabetical List of Employees/Payees of Income Payments as Amended under Revenue Regulations No. 1-2014

The BIR just recently issued Revenue Regulations No. 1-2014 amending the provisions of Revenue Regulations (RR) No. 2-98, as Further Amended by RR No. 10-2008, Specifically on the Submission of Alphabetical List of Employees/Payees of Income Payments as follows:

“Section 2.83.3 Requirement for list of payees – All withholding agents shall, regardless of the number of employees and payees, whether the employees/payees are exempt or not, submit an alphabetical list of employees and list of payees on income payments subject to creditable and final withholding taxes which are required to be attached as integral part of the Annual Information Returns (BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601C, etc.), under the following modes:

(1) As attachment in the Electronic Filing and Payment System (eFPS);

(2) Through Electronic Submission using the BIR’s website address at esubmission@bir.gov.ph; and

(3) Through Electronic Mail (email) at dedicated BIR addresses using the prescribed CSV data file format, the details of which shall be issued in a separate revenue issuance.

“In cases where any withholding agent does not have its own internet facility or unavailability of commercial establishments with internet connection within the location of the withholding agent, the alphalist prescribed herein may be electronically mailed (e-mail) thru the e-lounge facility of the nearest revenue district office or revenue region of the BIR.”

Please refer ftp://ftp.bir.gov.ph/webadmin1/pdf/80937RR%201-2014.pdf of the full text of the Revenue Regulations No. 1-2014.

But there're issues arises with the new Revenue Regulation No. 1-2014 (Submission of Alphabetical List of Employees/Payees of Income Payments) issued by the Commissioner of Internal Revenue (CIR): First (1) Under this regulation imposes a higher penalty compared to Section 250 of the NIRC. Failure to file for every BIR return related to the regulation is subject to P1,000 fine and failure to comply with the technical/substantial requirements shall not qualify as a deductible expense for income tax purposes. Secondly, (2) Under the current EFPS does not allow for attachments. Thirdly (3) The currently Alphalist is not required to be submitted with BIR 1601-C. Technical issues and penalty issues...

Requirements and Procedure Flow in the Application of Professional Tax Receipt (PTR) in Makati City

The Miscellaneous Tax Office in Makati City has posted the requirements and procedural flow in the application of Professional Tax Receipt (PTR)  to make it generally known as reference to taxpayers. 

For New Application, Taxpayers are required to first fill up the Application Form (FRM04) and need to present the required documents of the Original I. D. Card (license) from the Philippine Regulatory Commission (PRC) to the authorized person. For Lawyer, Insurance Agent, Masseur and Real Estate Appraiser need to present also the Certificate of Membership from the Supreme Court, License from the Insurance Commission, License from the Department of Health (DOH) and License from the Department of Trade & Industry, respectively.

While, for Renewal, taxpayers are required to present the previous Professional Tax Receipt (PTR) for verification.

After the required documents are presented, the authorized person will encode the details and issue billing for payment of the Professional Tax Receipt (PTR).

Finally, the last procedure flow is the issuance of Professional Tax Receipt (PTR) from the authorized person.

Tax Guide for Professionals: Who are Required to Pay Professional Tax Receipt?

According to the Tax Guide for Professionals authored by the Bureau of Internal Revenue, defined Professional, classified as self-employed, refers to individual or a group, practicing his or their profession or calling, with or without license under a regulatory board or body.

For individuals, one of the registration and documentary requirements is the payment of Professional Tax Receipt (PTR) from the local government, if applicable. If the professional is registered in Makati, Professional Tax Receipt (PTR) is payable annually on or before January 31. Persons engaged  in the practice of profession requiring government examination is levied an annual professional tax of P300, except those exclusively employed in the government. Please refer http://www.makati.gov.ph/portal/uploads/staticmenu/docs/taxes_and_fees.pdf of the full text of paying miscellaneous taxes, fees and charges.

It also includes BIR requirements in the payment of Annual Registration Fee (RF) of P500 and other related taxes.

Aside from that, Professionals are required to maintain books of accounts using any acceptable method of accounting (accrual or cash basis) in a consistent manner. Their books of accounts are to be audited and examined by an independent Certified Public Accountant (CPA) in order to give an independent opinion regarding its financial condition as required by the Bureau with certain conditions and requirements.

Please refer ftp://ftp.bir.gov.ph/webadmin1/pdf/taxguide.pdf of the full text of the Tax Guide for Professionals

and http://www.dilg.gov.ph/PDF_File/resources/DILG-Resources-201162-e82508a484.pdf of the Full Text of Local Government Taxation.

New SSS and PHILHEALTH Contribution Schedule is Effective in the Applicable Month of January 2014

The Social Security System has issued the Circular No. 2013-010 last October 2, 2013 related to the revised schedule of contributions, including the Maximum Monthly Salary Credit (MSCs) and corresponding amount of contributions effective in the applicable month of January 2014 to all Employers, Employees, Self-employed, Voluntary and Overseas Filipino Workers (OFW) members. 

Upon recommendation of the Social Security Commission, the President of the Philippines has approved the increase of the contribution rate from 10.4% to 11%, and the MSC, from P15,000 to P16,000.

Please refer http://www.sss.gov.ph/sss/uploaded_images/circular/Circular2013_010_Hi.pdf of the full text of the Circular including the new SSS Contribution Schedule effective in the applicable month of January 2014.

Besides, the Philippine Health Insurance Corporation (PHIC) also issued last September 30, 2013 the Philhealth Circular No. 0027, s-2013 of the increase of premium contributions of all members effective January 2014.

Please refer http://www.philhealth.gov.ph/circulars/2013/circ27_2013.pdf of the full text of the Circular including the new Philhealth Contribution Schedule effective in the applicable month of January 2014.

The adjustments will increase the maximum daily allowance for illness, maximum daily allowance of maternity benefits, increase in monthly pensions for retirement pensions, decreases the withholding tax of employed employees and other related advantages.

We hope that the  Bureau of Internal Revenue (BIR) / Department of Finance (DOF) / Legislature will also increase the Basic Personal Exemption  and Additional Exemption for Dependents of Individual Taxpayers.

Resolution of the Retention Period and Guidelines on the Preservation of Books of Accounts and Other Accounting Records

The Bureau has issued last September 27, 2013 of Revenue Regulations No. 17-2013 which clarifies the clarifies the retention period and prescribes the guidelines on the preservation of books of accounts and other accounting records. 

With this, Individual and Non-Individual taxpayers are required to preserve their books of accounts, including subsidiary books and other accounting records for a period of ten (10) years counted from the day following the deadline in filing a return or if filed after the deadline, from the date of filing of the return, for the taxable year when the last entry was made in the books of accounts. 

Under the regulation, it is stated that if the taxpayer has any pending protest or claim for tax credit/refund of taxes, and the books and records concerned are material to the case, the taxpayer is required to preserve his/its books of accounts and other accounting records until the case is finally resolved. 

Unless the National Internal Revenue Code (NIRC) or other relevant laws requires a longer period of retention, the independent Certified Public Accountant who audited the records and certified the financial statements of the taxpayer, is the same manner as the taxpayer, has the responsibility to maintain and preserve copies of the audited and certified financial statements for a period of 10 years from the due date of filing the annual Income Tax return or the actual date of filing thereof, whichever comes later.

Taxpayers are required to kept at all times of all books, registers and other records, and vouchers and other supporting papers at the place of business of the taxpayer, subject to inspection by any internal revenue officer, and upon demand, the same must be immediately produced and submitted for inspection for purposes of regular audit or extraordinary audit, requests for exchange of information by a foreign tax authority under Sections 6 and 71 of the NIRC, and in the exercise of the Commissioner’s power to obtain information under Section 5 of the NIRC, along with others. 

Besides, the regulations also stated that the examination and inspection of books of accounts and other accounting records shall be done in the taxpayer’s office or place of business or in the office of the BIR. Any violation of the provisions of these regulations shall be subject to penalties provided in Sections 266, 275 and, other pertinent provisions of the NIRC; and Section 6 of Republic Act 

No. 10021 (the “Exchange of Information on Tax Matters Act of 2009”). 

Reference: Revenue Regulations No. 17-2013.

List of Taxpayers Mandated to Make Use of the Electronic Filing and Payment System (eFPS)

Under RR No. 1-2013 issued by the bureau on January 23, 2013, expands the coverage of taxpayers required to file tax returns and pay taxes through the Electronic Filing and Payment System (eFPS) with details as follows:

a. Large Taxpayers duly notified by the Bureau of Internal Revenue (BIR); 

b. Top 20,000 Private Corporations duly notified by the BIR; 

c. Top 5,000 Individual Taxpayers duly notified by the BIR; 

d. Taxpayers who wishes to enter into contract with government offices; 

e. Corporations with paid-up capital stock of Ten Million Pesos; 

f. PEZA-registered entities and those located within Special Economic Zones; and 

g. Government Offices, in so far as remittance of withheld VAT and business tax is concerned. 

h. National Government Agencies (NGAs) mandatorily required to use the Electronic Tax Remittance Advice (eTRA). 

With the development of the eTRA System, a sub-system of the eFPS, the base of taxpayers mandated to use eFPS is expanded to include all NGAs since the latter make use of the TRA in settlement of their withholding tax liabilities arising from the use of funds being released by the Department of Budget and Management (DBM). Through the eTRA System, the NGAs can access the eFPS, file their tax return electronically and accomplish the eTRA on-line, provided the prescribed enrollment to the eFPS has already been complied with. 

All NGAs, including their branches and extension offices located nationwide which have their own disbursement branches will mandatory use the eFPS in filing the required returns and in paying taxes due upon receiving of the Notification Letter issued by the BIR.

However, taxpayers not stated in the RR No. 1-2013 has the option to apply and make use of the eFPS but for me not advised to do so.

Reference: Revenue Regulations No. 1-2013; RR No. 9-2001; RR 10-2007

Registration of Manual of Books of Accounts

I was one who experienced the confusion and frustration in the registration of manual of books of accounts because of the different rules and procedures adopted by the different Revenue District Offices (RDOs) of the Bureau of Internal Revenue. Some RDOs, required taxpayers to first present the previously registered books of account regardless of whether or not the pages have all been filled up before a new set of books of accounts is registered. While, other district offices, a photocopy of the stamped front page of the previously registered books of account is the document required in order to approve the registration of the new set of books. 

With the misinterpretations on registration procedures, the BIR has issued the Revenue Memorandum Circular No. 82 - 2008 for the proper registration procedures for manual books of accounts based on the existing provisions in the Bookkeeping Regulations. 

The existing rules with respect to the registration of manual books of accounts is with details as follows:

(1) Manual books of accounts previously registered but whose pages are not yet fully exhausted can still be used in the succeeding years without the need of re-registering or re-stamping the same, provided, that the portions pertaining to a particular year should be properly labeled or marked by taxpayer; 

(2) The registration of a new set of manual books of accounts shall only be at the time when the pages of the previously registered books have all been already exhausted. This means that it is not necessary for a taxpayer to register a new set of manual books of accounts each and every year. 

(3) The registration deadline of “January 30 of the following year” as enunciated in RMO 29-2002 applies only to computerized books of accounts and  2 not to manual books accounts. The “15 days after the end of the calendar year” deadline under RMC 13-82 refers to loose-leaf bound books of accounts and not to manual books of accounts; 

(4) Newly Registered taxpayers shall present the Manual Books of Accounts before use to the RDOs where the place of business is located or concerned office under the Large Taxpayer Service for approval and registration; 

(5) Subsidiary manual books of accounts to be used by taxpayers, in addition to the manual books of accounts, required by the National Internal Revenue Code of 1997 and existing rules, shall likewise be registered before use, following the same rules abovementioned; 

(6) It is to be emphasized that the Taxpayer Service Section (TSS) of the RDOs or concerned office under Large Taxpayer Service has no authority to examine whether the previously registered books are complete and/or updated prior to the approval of the registration. 

The aforementioned rules are to be uniformly observed by revenue officers in charge of registration of manual books of accounts. 

Taxpayers should strictly comply with this registration requirement for books of account in order to avoid compromise penalty of P1,000 for failure to register the manual books under the revised schedule of compromise penalties.

Some companies are still registered under manual books of accounts, although they generate accounting records using computer programs or software. Printouts of such records are simply pasted in their registered manual books. The regulations are not clear whether the practice is allowed. But this instances has been questioned by tax examiners. Thus, this is also liable to penalty under the laws and regulations.

The companies and taxpayers are advised to properly register the kind of books that it actually maintains and do the good practice to avoid being exposed to penalties. 

Reference: RMC No. 82-2008; RMO No. 19-2007