Ease of Paying Taxes Act Seeks to Simplify Tax Compliance, Strengthen Taxpayers' Rights
In September 2021, the House of Representatives approved on third reading House Bill (HB) 8942 – the Ease of Paying Taxes Act. The bill proposed to amend the National Internal Revenue Code as amended (the Tax Code) and introduce administrative reforms that will simplify tax compliance and strengthen taxpayers' rights.
Several of the amendments to the Tax Code in HB 8942 are set out below:
- The secretary of finance will be authorised to establish reasonable criteria for classifying taxpayers, considering factors such as:
- the taxpayer's capacity to comply with tax rules and regulations;
- gross sales or receipts; and
- other economic and financial factors.
These classifications will include large and medium taxpayers; further, more precise classifications may be necessary in order to improve tax services and administration. For ease of compliance with tax rules and regulations, simplified tax returns and processes will be implemented for taxpayers that are not classified as "medium" or "large".
- Uniform value-added tax (VAT) documentation will be applicable for sales of goods and services. Under HB 8942, VAT-registered persons will have to issue only one type of VAT invoice for both sales of goods and services.
- Taxpayers will be allowed to pay income taxes while filing a tax return or before their taxes are due, thereby eradicating the "pay-as-you-file" system. HB 8942 provides definitions for the terms "filing of return" and "payment of tax".
- Registration facilities will be made available for non-resident taxpayers.
- Tax registration may be cancelled simply by filing the registration information update form. Any audit that the Bureau of Internal Revenue (BIR) conducts, where a registration has been cancelled, will be made based only on a risk assessment evaluation.
- HB 8942 provides for flexibility on the venue for tax payments by deleting the requirement that taxes be paid at only BIR offices or banks that have jurisdiction over the taxpayer's residence or principal place of business.
- HB 8942 seeks to strengthen taxpayers' rights by setting out the fundamental rights of taxpayers (ie, the taxpayers' bill of rights), such as the right to:
- pay no more than the correct amount of tax;
- a fair and just tax system;
- the speedy disposition of tax cases and audits; and
- be protected against malicious, excessive and wrongful assessments.
HB 8942 will also create the Office of the Tax Advocate, which is independent from the BIR, to ensure that the rights of taxpayers are protected and to provide assistance. The Office of the Tax Advocate will also identify systemic problems within the BIR and propose changes in order to mitigate any identified problems.
The enactment of HB 8942 will be a welcome development if it makes tax compliance, especially for small or medium taxpayers, more convenient and less burdensome. However, it will also provide a new burden on sellers of services, which will now be subject to VAT upon issuance of the invoice (usually after the service has been provided) and not upon receipt of the payment. Further, while the Office of the Tax Advocate is intended to be independent from the BIR, it will report directly to the commissioner of internal revenue, who is the head of the BIR – this appears to dilute such independence. As the bill is still pending before the Senate, changes may still be introduced to HB 8942 that will hopefully further ease the burden of tax compliance on taxpayers and improve tax administration.