TAXES are an integral part of nation-building. Their pivotal role is to spur the nation towards progress and enable the government to deliver essential public services to citizens. When we, as citizens, understand how critical our tax contributions are to the country's growth, paying taxes becomes more than just compliance or a mandatory practice.

The signing of Republic Act (RA) 11967, or the "Ease of Paying Taxes (EOPT) Act" into law on Jan. 5, 2024, serves not only to modernize tax administration but also to update the taxation system. The law, which became effective on Jan. 22, 2024, also provides a more comprehensive and streamlined process aimed at encouraging more taxpayers to pay on time and foster compliance.

Salient changes introduced by the EOPT Act are as follows:

– Taxpayers are now divided into four groups: micro (under P3 million), small (between P3-20 million), medium (between P20 million and P1 billion), and Large (over P1 billion). To address the potential understatement of tax obligations that could impact the government's financial flows, the President vetoed Section 8 of the Act, which exempts micro-taxpayers from withholding creditable income tax.

– Payment of the annual registration fee of P500 is no longer required. Existing certificates of registration, which include the registration fee, remain valid but can be replaced or updated at the Revenue District Office (RDO), where the business is registered on or before Dec. 31, 2024.

– The fixed venue for payment of taxes was removed. Taxpayers can now file and pay anywhere, either electronically or manually, with any authorized agent bank, RDO through the revenue collection officer, or authorized tax software provider. Consequently, surcharges for paying at the wrong venue were removed.

– The existing "whichever comes first" rule for withholding taxes no longer applies. The rules for withholding taxes were simplified. Thus, withholding taxes is now required at the time the income becomes payable.

– Section 34 (K) of the Tax Code, which requires withholding of taxes for deductibility of expenses from gross income, was repealed, eliminating the disallowing of expenses due to non-withholding.

– The uniform basis for value-added tax (VAT) was adopted. VAT for both sale of goods and sale of services is now based on gross sales. VAT invoices have become the only supporting document for declaring output taxes and claiming input taxes. In doing so, the accrual basis for income tax and VAT purposes is aligned, eliminating huge discrepancies between gross sales declared in the income tax and VAT returns. However, for service providers, this change may impact taxpayers' cash flows, so better planning is needed.

– VAT refund claims are classified as high-risk, medium-risk, or low-risk, with medium- to high-risk claims undergoing audit and verification. Taxpayers can appeal the decision of the BIR to the Court of Tax Appeals within 30 days from receipt of denial or after the 90-day period.

– For refund claims arising from erroneous or illegal tax collection, the BIR must act within 180 days from the submission of complete documents. The timing of filing the appeal to the Court of Tax Appeals has been changed. Taxpayers may appeal to the CTA within 30 days of receipt of denial or lapse of a 180-day period.

– Mandatory issuance of invoices for each sale of goods and services was raised from P100 to P500.

The Bureau of Internal Revenue (BIR) has 90 calendar days from the effectivity of the law to issue the implementing rules and regulations. Taxpayers have six months from the effectivity of the implementing rules and regulations to comply with the amendments on VAT and other percentage taxes.

Present tax reforms and initiatives are focused on improving the nation's tax-to-gross domestic product (GDP) ratio. This year, the BIR has set a collection target of P3.046 trillion, a 15-percent increase from last year's target.

Despite having no major tax reforms signed into law in 2023, Congress was able to approve RA 11956, or the "Extension of Estate Tax Amnesty." The law extended the estate tax amnesty for another two years or until June 14, 2025. It also extended coverage to include estate taxes accrued as of May 31, 2022. The amnesty rate remains at 6 percent based on the decedent's net estate. The extension gives much-needed time to heirs for the preparation of required documents and finally settling the estates of their relatives.

Remaining tax reform packages, as initially identified under the Duterte administration, still have to be passed by the Senate. These are the Passive Income and Financial Intermediary Taxation Bill and the Real Property Valuation Reform Bill. In addition, several tax bills remain pending with the chamber:

– The Digital Services Tax bill imposes a 12 percent VAT on transactions of digital service providers such as online auction hosts, subscription-based services, e-learning and marketing services.

– The Enhancing the Fiscal Regime for the Mining Industry bill seeks to limit interest expense deduction of metallic mining contractors, imposes a royalty on large-scale metallic mining operations within mineral reservations equivalent to 4 percent of gross output, imposes a margin-based royalty on income from operations outside mineral reservations equivalent to 1 to 5 percent, and imposes a royalty rate for small-scale operations equivalent to 1/10th of 1 percent of gross output.

– The Create More measure, lastly, seeks to address uncertainty over the implementation of VAT and tax administration provisions of the Create Act. It mandates a simplified VAT refund system, clarifies the VAT regime for registered business enterprises, defines the power of the President to grant incentives, and allows business process outsourcing firms to undertake work-from-home schemes, among others.

The new year has greeted us, taxpayers, with a new law simplifying the payment of taxes and compliance requirements. Reforms aimed at making tax rules easy to understand and comply with are needed to encourage taxpayers to pay their taxes. Complicated rules distract taxpayers from focusing on compliance. Continuous collaboration between tax administrators and taxpayers is crucial to effectively implementing the new law. As we start the year with a new law, let us all strive to be tax-compliant and pay our taxes properly.

Eleanor Roque is a tax advisory and compliance principal at P&A Grant Thornton. One of the leading audit, tax, advisory, and outsourcing firms in the Philippines, P&A Grant Thornton is composed of 29 partners and 1,500 staff members. We'd like to hear from you! Tweet us at @GrantThorntonPH, like us on Facebook at P&A Grant Thornton, and email your comments to pagrantthornton@ph.gt.com. For more information, visit our website at www.grantthornton.com.ph.