TAX WISHLIST FOR 2016

Happy New Year, fellow Taxpayers!

At the start of 2016, it is good to reflect and draw up a list of our aspirations as Filipino taxpayers for this New Year. This list is something that we can all share with other taxpayers and demand from our Government, both from the current administration and the candidates for the upcoming 2016 elections. 

Here's how my wishlist goes!  

Wishlist #1: INFLATION-ADJUSTED TAX BRACKETS

This is basic and elementary. Simply a no-brainer. 

Everyone knows that, with inflation, the value of income you earned in 1997 will translate to even higher income value this 2016. For example -- your P500,000 salary in 1997 is now equivalent to about P1.1 million this 2016. In 19 years, you have become a millionaire but, in terms of "real" value, they are really just the same. 

Unfortunately, the personal income tax table has remained unchanged since 1997. The taxable income values in the tax table have not been adjusted to inflation.  Thus, as your income goes up with the simple passage of time, you naturally get pushed up to the higher tax bracket. No wonder your effective tax rate goes higher and higher each year!

And here's my simple wish -- that the Government, through Congress, muster the courage to correct this defect and act swiftly within the next few weeks to amend the Tax Code with the new tax table below:

There should also be a provision for the automatic indexation of the tax table against inflation to avoid the same problem in subsequent years. 

With this top wish on my list, the Government will be able to increase the take-home pay of many salaried workers, including Government workers who will receive salary increases starting this year under the 2015 salary standardization law. 

I continue to pray that the Government finally comes to its senses to see the truth and decide in favor taxpayers rather than technocrats, who keep on warning about budget deficits and yet underspending the budget anyway. 


Wishlist #2: LOWER TAX RATES

This is not just a populist proposal.  It is something that the next Congress should continue pushing for since it makes a lot of sense, especially being part of the ASEAN region. And this applies to both individual and corporate taxes.

Aside from making our country more competitive in terms of attracting foreign investments, lower tax rates will also encourage greater tax compliance among individual and corporate taxpayers. 

As it is, the Philippines effectively has the highest tax rates in the ASEAN region and quite a limited number of taxpayers in the current system -- most of them, unfortunately, are mere salaried workers, like you and me. 

With lower tax rates (but with a tighter system for monitoring and penalizing non-compliance), we hope to get into the "Tax Net" more and more taxpayers who ought to do their fair share in nation-building. 

When we have low tax rates, we have every right to put to shame those who still refuse to pay their correct taxes -- Ibinaba na nga ang tax rates, ayaw pa ring magbayad ng tax...That is really such a disgrace! 


Wishlist #3: SIMPLIFIED TAX SYSTEM

Complexity breeds non-compliance. 

I personally believe that there are many Filipinos out there who would want to do the right thing and pay their taxes. Unfortunately, the current system somehow prevents them from doing so.  

First, blame it on the complex Philippine Tax Code, which is largely based on the American Tax Code. It is high time that we do a comprehensive review of the Tax Code to simplify four (4) important areas:

1) Tax Types

We need to reduce and/or aggregate the many different type of taxes being imposed on taxpayers. We also need to check if certain taxes, like documentary stamps taxes, are still relevant today. This will give focus both for taxpayers and the BIR. Taxpayers will have fewer but, more significant taxes to comply with and pay for. Meanwhile, the BIR will be able to concentrate its efforts in collecting these taxes from taxpayers. 

2)  Exemptions and Deductions

We need to minimize and/or eliminate the various forms of exemptions and deductions.  Having too many of these generous provisions in the Tax Code makes the taxpayer prone to confusion and even evasion. Paring them down or taking them out altogether will also make the BIR's job easier.

3) Frequency of tax return filings

Most of the taxes imposed under the Tax Code are required to be filed and paid on a monthly basis.  This makes compliance burdensome and costly on the part of ordinary taxpayers. Administrative costs of the BIR are also higher because of this. Thus, we need to lessen the prescribed tax return filing deadlines during the taxable year.  

4) Various administrative requirements

Given that we are now in a digital age, there should be more flexibility in the administrative requirements prescribed under the Tax Code, such as invoicing/receipting, bookkeeping, submission of audited financial statements and various tax reports. 

These admin requirements should also not be specified under the Tax Code since we have to enact a new law just to update it.  Rather, the BIR, as the tax administrator, should be given the power to prescribe most of these requirements. 

However, just like any power, this power given to the BIR should be subject to certain limitations and regular review by Congress. This is an important point, especially since the current BIR administration has the tendency of making tax compliance even more difficult for taxpayers with its burdensome rules and regulations. 

With the intent of catching tax evaders, the BIR sadly ends up strangling those who are already complying within the system. Meanwhile, those who would like to "legitimize" themselves to become part of the tax system get to be overwhelmed by too many requirements that they turn around disheartened, seeing that it would not be worth their time and effort in the end. 


Wishlist #4: RESPECT FOR TAXPAYER RIGHTS

The Tax Code provides so much power to the Commissioner of Internal Revenue (BIR) but, there is there is nothing much on taxpayers' rights, except for taxpayer remedies in case of BIR examination and assessment. 

I strongly believe that we need a Magna Carta of Taxpayer Rights (and Responsibilities, as well, to balance it off!) to provide for certain basic rights which must be accorded to taxpayers by tax authorities. 

Examples of these taxpayer rights, as provided by the OECD Centre for Tax Policy and Administration, are as follows: 
- The right  to be informed, assisted and heard; 
- The right of appeal; 
- The right to pay no more than the correct amount of tax; 
- The right to certainty; 
- The right to privacy; and 
- The right to confidentiality and secrecy.

Educating the taxpayers on their rights and providing measures to uphold these rights will help prevent abuses by tax authorities in their use of administrative powers. 


Wishlist #5: FAIRER TAX SYSTEM

Last but definitely not the least, I am sure that we all dream of a fairer and more equitable tax system -- wherein those who have more in life really pay more and those who have less in life get to pay less. 

There have been studies that the more fair a taxpayer perceives the tax system to be, it is more likely that the taxpayer will comply.  

If we get to address the first four (4) wishlist items, then we will achieve more fairness in the current tax system. However, the system must also be re-designed to effectively tax, not only those who earn more (in terms of income), but also those who have more (in terms of wealth). 

It has been noted by the World Bank that there is growing inequality in the Philippines with the wealth of the 50 richest Filipinos being equivalent to 1/4 of the country's GDP! 

It is really about time that we make our tax system a tool for redistributing wealth in this country.  It is not just about getting more and more collections for the Government. But, getting those increase in collections more from the wealthier taxpayers in this country, rather than from salaried workers belonging to the lower and middle-class. 

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With my 2016 Tax Wishlist, I sincerely hope that we will commit to support and work towards Tax Reform this year and in the years to come. Government and Congress will have much work to do but, we must also do our share. 

How? By fulfilling our tax obligations as Filipino taxpayers, voicing out our concerns as Filipino citizens, and monitoring where our taxes go as our Government's bosses. 

Here's to a great year for #TaxReformNow ahead of us! 

THE (eBIR) ITR SAGA CONTINUES

Given the confusion brought about by BIR regulations prescribing the use of eBIR forms for ALL non-EFPS taxpayers (see previous blog post dated March 26, 2015), the BIR issued yesterday two (2) Revenue Memorandum Circulars (RMCs) that seek to clarify the many questions posed by taxpayers.

There is RMC 11-2015, which clarified what the BIR meant by including "accredited tax agents/practitioners and all its client-taxpayers" among the mandatory coverage of online eBIR forms. Under this RMC, those required to do the electronic filing are accredited tax agents/practitioners, who are authorized to sign and file the tax returns on behalf of their clients. 

This clarification came about in light of questions posed by many tax accountants who prepare ITRs for their clients. As clarified, when a taxpayer hires a tax accountant/agent to prepare his tax return BUT the same taxpayer signs his own tax return, the client-taxpayer would NOT be required to electronically file his eBIR forms.

Meanwhile, RMC 12-2015 granted much-needed relief to the following taxpayers by allowing them to manually file pre-printed or PDF/Excel file tax returns:

• Senior citizens and persons with disability (PWDs)
• Salaried workers filing BIR Form 1700 with taxes fully withheld by the employer (i.e., no additional tax due)
• Salaried workers who opt to file ITRs, even if they are qualified to no longer file them, due to personal reasons, such as foreign travel, promotion, scholarship, etc.

Considering that the tax risk for these types of taxpayers is very low, it is but proper that they be spared from the new eBIR filing requirement.

While these two (2) latest BIR issuances were able to address certain taxpayer concerns, the call to defer the mandatory use of eBIR forms (be they offline or online) still remains very valid today. 

April 15 is just 15 calendar days away.  With three (3) non-working holidays and four (4) days on a weekend, this gives taxpayers just seven (7) working days to prepare their ITRs before the deadline. 

However, there still is so much confusion on the part of taxpayers on how they can properly comply with the current ITR requirements.  Even BIR RDOs and accredited banks, which are tasked to receive the ITR forms, are confused as to what forms to accept and, to play safe, many of them only accept eBIR forms and refuse all other kind of ITR forms.  

All of these concerns stem from the lack of consultation and adequate time for education of the various stakeholders to the ITR change process, such as the taxpayers, RDOs, and accredited banks. 

The best way to ensure compliance to any new tax rule is by involving stakeholders in the change process. This can only be done by cascading information way beforehand on any forthcoming major change in tax rule or policy.  This will allow the stakeholders in the tax system to fully understand how it impacts them and enable them to plan how they can best comply with it.

The first step toward change is awareness. 

The second step is acceptance. 

~Nathaniel Branden

Today taxpayers continue to call on the BIR to defer the full implementation of the eBIR ITR forms this tax filing season.

In a letter dated March 30, 2015, the Tax Management Association of the Philippines (TMAP) formally requested the BIR to defer the full implementation of the eBIR ITR forms until after April 15, 2015.  TMAP also suggested that, at the very least, it should be made optional at this time with a gradual phase-in implementation.

We continue to hope and pray that the BIR will listen to the voice of confused and weary taxpayers, many of whom would only want to contribute their fair share in nation-building.  

Let us watch as the saga continues to unfold in the coming days.

THE CONFUSING CASE OF (eBIR) ITR FORMS

There has been a lot of confusion lately regarding the ITR forms to be used this tax filing season. Taxpayers have started to panic upon hearing the news that everyone would now have to use electronic forms in their annual ITR filing this year.  

This mainly stemmed from the BIR's issuance of Revenue Regulations (RR) 5-2015, which prescribes the mandatory electronic filing of eBIR forms by certain types of taxpayers, including "No Payment" returns, and imposing penalties on them (see previous blog post dated March 23, 2015).

However, this new regulation simply amends a previously-issued regulation, RR 6-2014, which mandates the use of eBIR forms for ALL other taxpayers that are not under EFPS. (Note: The Electronic Filing and Payment System is applicable only to large taxpayers and other top taxpayers upon prior notice by the BIR). 

Starting September 1, 2014, the BIR no longer accepted pre-printed tax forms (even those printed through a PDF/Excel file) for the monthly business tax and quarterly income tax return filings. Instead, taxpayers would need to have a computer with internet connection and encode their tax return details using either the offline or online eBIR forms. 

And what is the difference between offline and online eBIR forms? The forms are the exactly the same and the differences arise in the supposed taxpayer-users, the manner of access, and the mode of filing/payment.  

Please see below for a quick guide.

*Mandatory non-EFPS taxpayers for online eBIR forms include the following:(1) Accredited Tax Agents/Practitioners and all its client-taxpayers; (2) Accredited Printers of Principal and Supplementary Receipts/Invoices; (3) One-Time Transaction (ONETT) taxpayers; (4) Those who shall file a “No Payment” Return; (5) Government-Owned or -Controlled Corporations (GOCCs); (6) Local Government Units (LGUs), except barangays; and (7) Cooperatives registered with National Electrification Administration (NEA) and Local Water Utilities Administration (LWUA)

However, upon checking the BIR site, the online eBIR forms are still NOT yet available up to now.  Apparently, the BIR's system is not yet technically ready at this point to implement the online eBIR forms filing. With this, various BIR Revenue District Offices (RDOs) have advised taxpayers to use the offline eBIR forms until further notice that the online system is already available. 

Meanwhile, come April 15, it is expected that, aside from self-employed and professionals, there will be a huge influx of salaried workers who need to file their annual ITRs -- i.e., they do not qualify for exemption from ITR filing, unlike regular salaried workers who only have one employer during the year and do not have other sources of income. 

These annual ITR filers usually include:

• Those with mixed income -- i.e., salary plus income from other sources
• Those with two or more employers during the year -- this is the usual case for BPO workers.

There are also salaried workers who, even if they qualify for exemption from ITR filing, personally need to file their ITR as a financial document either for travel, loan, or  government promotion purposes.

For all these types of individual taxpayers, they would have to now use eBIR forms in filing their ITRs, much to their surprise. 

While we understand the BIR's thrust towards a more effective and efficient tax collection system using electronic means, the BIR must also understand that not all taxpayers would be readily equipped to shift to this new electronic mode of ITR preparation/filing.

Not all would have computer/internet access and, even if there are BIR e-lounges, not all would be computer literate. Currently, there are also some technical and capacity issues that the BIR needs to resolve in order to ensure that its system can properly handle the deluge of ITR filers during this season. 

With this, let us continue to hope and pray that the BIR will soon reconsider its prescribed electronic procedures in this year's ITR filing.  Rather than immediately mandating the use of eBIR forms this April 15, the BIR should instead provide taxpayers with various options on the mode of ITR filing/payment that is most convenient for them, including allowing the taxpayers to revert back to the previous pre-printed or PDF/Excel file tax forms.  This is the only way that we can encourage greater tax compliance and not dissuade taxpayers from fulfilling their tax obligation as good citizens of this country.

LAST MINUTE SURPRISES FOR APRIL 15

April 15 is only about three (3) weeks away and just like last year, when totally new income tax return (ITR) forms were suddenly released and mandated for use by the BIR, taxpayers once again received some last-minute surprises before this year's ITR filing deadline. 

Just this March, the BIR issued two (2) new revenue regulations (RRs) that prescribe new requirements for large and small taxpayers and both RRs will greatly impact on affected taxpayers during this year's ITR filing season. 

One of these regulations, RR 2-2015, involves the requirement for digitized submission of certificates of taxes withheld (CTWs) to be claimed as tax credit by large taxpayers against their income tax payable. This new requirement took effect last March 21, 2015.

While large taxpayers would normally welcome the submission of documents in digital format, this is not the case for RR 2-2015. With this new rule, large taxpayers will have to manually scan each of the hundreds and even thousands of certificates that they receive from customers, arrange each one of them with a specific file name format, and submit the files via DVD to the BIR. 

With this new requirement, BIR personnel will avoid receiving and stamping truckloads of CTWs during the filing season. However, the requirement for scanned files will definitely result to additional work and costs on the part of large taxpayers, not to mention the fact that they still need to maintain the hard copy of all those certificates in the event of BIR audit.   

Meanwhile, another new regulation, RR 5-2015, mandates certain types of taxpayers to file their returns using the BIR's eBIR forms facility. These include those with "No Payment" returns and One Time Transaction (ONETT) taxpayers, among others. Under this new rule, taxpayers who fail to comply will be imposed a penalty of P1,000 per return and additional civil penalty of 25% of the tax due. 

With this new regulation, the BIR hopes to facilitate the electronic submission of tax returns and minimize the manual filing at the BIR offices. However, while this is envisioned to make it more convenient for taxpayers to file their tax returns, the new regulation provides that it shall take effect immediately, despite the fact that the RR was only issued last March 17, 2015 (although an initial regulation, RR 6-2014, was already issued in 2014).

In both cases, the BIR mandated these new rules with less than a month to go before April 15. Many affected taxpayers are now at a loss on how to best comply with the new tax filing requirements, aside from encountering certain technical difficulties and raising certain practical issues along the way. 

Unfortunately, the BIR has confirmed that these new rules will already apply in time for the April 15 ITR filing for taxable year 2014. It is made even worse for affected individual taxpayers, who also need to file their 1st Quarter ITRs on April 15.

While it is important that the BIR is able to capture tax information in a timely and efficient manner, especially through electronic means, let us not forget that one of the most basic taxpayer rights is the right to be informed, assisted and heard. 

It is very important for for taxpayers to properly understand new tax rules with sufficient lead time for taxpayer education and cascade of information. This becomes even more important considering that public hearings are no longer conducted by the BIR prior to the issuance of new regulations, unlike before. 

Taxpayers should be given sufficient time to adjust their systems and processes so that they can best comply with the new tax filing requirements. The BIR should also have more than enough lead time to properly conduct a tax information campaign among taxpayers and hear out various taxpayer concerns.  

Given this, we need to appeal to the BIR to defer the implementation of these new regulations until after this April 15 tax filing season. At the very least, these should be made optional at this point, rather than mandatory.  

Otherwise, giving Filipino taxpayers less than a month before April 15 to prepare and comply with these new tax regulations is like setting them up for failure.