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Insights Simplifying tax compliance: The Ease of Paying Taxes Act in operation

Simplifying tax compliance: The Ease of Paying Taxes Act in operation

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“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.” This is how Finance Secretary Benjamin E. Diokno introduced the Ease of Paying Taxes Act (EOPT Act), enacted in January 2024. The Marcos’ administration´s vision was to transform tax compliance for Filipino SMEs by streamlining business tax administration. 
     
Effective since 22 January 2024, the law brings significant amendments and improvements to the National Internal Revenue Code of 1997, focusing on safeguarding taxpayer rights and modernizing tax administration, embedded in the Philippines continuous digitalization efforts. The key changes were improvements in electronic tax filing and payment processes, classification of taxpayers (obligations) by sales/revenue, and harmonization of VAT regulations: 
       
The EOPT Act includes inter alia the following amendments: 
  • Allowing electronic or manual submission of tax returns and payments through any authorized agent bank or approved tax software providers to the Bureau of Internal Revenue (BIR), eliminating the requirement for taxes to be paid at fixed venues. 
  • Taxpayers are classified into micro, small, medium, and large taxpayers, based on their gross sales. Accordingly, together with a risk-based approach to tax payers/payments, based on the category a company falls in, processes were and are continuously adjusted.
  • Shifting the basis for imposing value-added tax (VAT) on services from gross receipts to gross sales, necessitating sales invoices for goods and services, and harmonizing VAT regulations. A paradigm-change in the VAT system, which benefits vs. the burden of taxpayers to pay the VAT, even if there has been no collection yet may be argued.
  • The Bureau of Internal Revenue is in the (continuous) process to improve its digitalization level in the tax administration and currently develops a specific Ease of Paying Taxes and Digitalization Roadmap to facilitate administrative processes, to minimize paperwork and to kickstart digital services for taxpayers. 
  • Non-residents have the option to register for tax facilities to attract foreign investment, which has been a challenge in the past particularly for short to midterm project contractors from overseas.
  • Income payments will be subject to tax withholding only when they become due for payment.
  • With effect on April 2024 VAT invoices will be the only document issued by a VAT-registered individual for each transaction involving the sale, exchange, or lease of goods, and services. The VAT official receipt is no longer considered the primary commercial document issued by a VAT-registered individual and is no longer valid supporting documentation for claiming input VAT creditable against output VAT.
  • The transfer of the place of business is possible electronically or manually. It will remain to be seen in practice. However, it has the potential to reduce the process that might take weeks to months in some occasions to a significant shorter period. 
The EOPT Act marks an important shift in tax compliance in the Philippines aiming to streamline administrative processes, attract foreign investment, and enhance taxpayer convenience through digitalization. However, its impact on taxpayers’ benefits will unfold over the coming years. The Philippine legislative branch hopes to increase compliance with the taxation system and to boost the country’s revenue collection.
     
This legislative momentum follows the tax reform of 2021 with the CREATE Bill and ongoing efforts by the House of Representatives to further amend taxation laws, including the proposed CREATE MORE Act alongside the enactment of the EOPT Act.
      
The Philippines has shown particularly over the last decade and in the area of taxation and tax administration significant reforms. A key focus has been, particularly under the current administration, to attract foreign investment. The focus needs to be now on the  implementing rules and regulations and practical implication of the encouraging developments and to continue the positive momentum the Philippines (tax system) enjoys. 

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