Keeping abreast with the demands of the ever-changing landscape of business structures and conveniences offered by the power of the Internet, Republic Act 11976, otherwise known as the “Ease of Paying Taxes Act”, was signed by President Marcos Jr. on 5 January 2024.

Important to consider in 1Q2024, the EOPT provides that the value-added tax on both the sale of goods or properties and the sale of services and the lease of properties shall now be based on “gross sales.”

For the sale of goods or properties, the EOPT substantially retained the definition of “gross sales.” However, for sale of services and lease of properties, “gross sales” shall mean “the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services during the taxable quarter for the services performed for another person, which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter, or exchange of services that has already been rendered by the seller and the use or lease of properties that have already been supplied by the seller, excluding value-added tax and those amounts earmarked for payment to third party or received as reimbursement for payment on behalf of another which do not redound to the benefit of the seller as provided under relevant laws, rules or regulations: Provided, That for long-term contracts for a period of one year or more, the invoice shall be issued on the month in which the service, or use or lease of properties is rendered or supplied.”

Nevertheless, the EOPT now allows the deduction of the value of services rendered for which sales allowances were granted by the taxpayer from the gross sales for the quarter in which a refund is made, or a credit memorandum or refund is issued. Likewise, the sales discount granted and indicated in the invoice at the time of sale, which proves to be without condition, may be excluded from the gross sales within the same quarter it was given.

With this change, the VAT invoice will be the sole supporting document required for output VAT liability and input VAT credit. The VAT official receipt shall no longer be applicable under the EOPT.

While this simplified VAT reporting procedure will require the taxpayers to remit output VAT on gross sales regardless of the probability of collection, the EOPT allows seller of goods or service to deduct the output VAT pertaining to uncollected receivables from its output VAT on the next quarter after the lapse of the agreed upon period to pay, provided that the seller has fully paid the VAT on the transaction and the VAT component of the uncollected receivables has not been claimed as bad debt expense. In case of recovery of the uncollected receivables, however, the output VAT pertaining thereto shall be added to the output VAT of the taxpayer during the recovery period.

Another development of the new law is the classification of creditable input VAT refund claims into low-, medium-, and high-risk claims. The risk classification is based on the amount of VAT refund claims, tax compliance history, and frequency of filing VAT refund claims, among others. Medium- and high-risk claims shall be subject to audit or other verification processes by the BIR. Notwithstanding the foregoing, the BIR is still given 90 days from the date of submission of complete documents to act on the claim for refund.

On the other hand, the BIR is also given 180 days to act on the claim for refund of tax alleged to have been erroneously or illegally assessed or collected. To recall, Section 229 of the Tax Code, as amended, is silent on the period within which the BIR should act on such a claim.            

(To be continued)

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