Newly signed law to modernize PH tax Administration, strengthen taxpayer rights

Finance Secretary Benjamin E. Diokno welcomed the enactment of the Ease of Paying Taxes (EOPT) Act, which was signed into law as Republic Act No. (RA) 11976 by President Ferdinand R. Marcos, Jr. on January 5, 2024, to modernize the Philippine tax administration and strengthen taxpayer rights.

“We are off to a good start this 2024. By making the tax system more taxpayer-friendly through simplified tax filings and protecting taxpayers’ rights, we will achieve our goal of encouraging and improving tax compliance” Secretary Diokno said.

RA 11976 will encourage more taxpayers to enter into and comply with the tax system by streamlining processes and minimizing the burden on taxpayers, thereby increasing the country’s revenue collection.

President Ferdinand R. Marcos, Jr. previously tagged the EOPT Act as a priority legislation in his State of the Nation Address (SONA). The measure supports the administration’s 8-Point Socioeconomic Agenda through the collection of more taxes to enhance economic and social development.

“After the comprehensive amendments to tax policy introduced by the previous administration, we now focus our sights on tax administration with the passage of the Ease of Paying Taxes Act. Recognizing the importance of how the government collects taxes, this measure solidifies our commitment to our countrymen towards a dynamic and efficient tax administration which is responsive to the needs of our taxpayers, both individuals and those who are doing business, adapts to the changing times, and ultimately supports our recovery and growth objectives,” the President said in a statement.

The new law will classify taxpayers into micro, small, medium, and large according to their gross sales in order to form a tax system that is responsive and specific to each segment’s needs.

Filing of returns and payment of internal revenue taxes will also be made easier through electronic or manual means such as authorized agent banks or authorized software providers.

The option to pay internal revenue taxes to the city or municipal treasurer with jurisdiction over the taxpayer was removed in order to encourage the shift to electronic payment channels.

Furthermore, it ensures the availability of registration facilities to taxpayers not residing in the country.

The law also harmonizes the rules on the value-added tax (VAT) treatment of sales of goods and services, thereby requiring sales invoice for both.

The mandatory issuance of receipts for each sale and transfer of goods and services will be increased from PHP 100 to PHP 500.

The VAT refunds will be classified into low-, medium-, and high-risk claims which are based on the amount of VAT refund claim, tax compliance history, and frequency of filing of VAT refund claims, among others.

Moreover, an invoice system will be implemented to accelerate VAT refunds.

The Act now also provides a 180-day period for the Bureau of Internal Revenue (BIR) to process general refund claims on erroneous or illegally collected taxes.

On top of this, the Ease of Paying Taxes and Digitalization Roadmap will be developed by the BIR to promote and assist taxpayers by streamlining tax processes, reducing documentary requirements, and digitalizing its services.

In line with this effort, the number of income tax return (ITR) pages will be reduced from four to two pages only.

The President, however, vetoed Section 8 of the Act which exempts micro taxpayers from withholding creditable income tax citing possible understatement of tax obligations that would impact on the government’s cash flows.

Creditable withholding taxes serve as advance payment of tax obligations and an audit trail for compliance.

“We have to strike a balance between providing relief to taxpayers, on the one hand, and maintaining administrative efficiency through the integrity of our tax collection and monitoring mechanisms, on the other,” the President explained.

The law’s implementing rules and regulations (IRR) shall be promulgated 90 days from the effectivity of the Act, after consultations between the DOF, the BIR, and the private sector.

RA No. 11976 takes effect 15 days after its publication in the Official Gazette or a newspaper of general circulation.