Six months into the COVID-19 pandemic and the government is low on funds. This is an expected effect of almost standstill business operations given the rising positive cases and prolonged lockdowns. Despite aggressive tax audit efforts by the Bureau of Internal Revenue (BIR), the limited workforce and social distancing measures being implemented nationwide restrict the conduct of examinations.
To collect additional revenue at the least administrative cost, the BIR is granting taxpayers the opportunity to pay additional tax, with or without a tax investigation, through a Voluntary Assessment and Payment Program (VAPP).
COVERAGE AND BENEFITS
Launched through Revenue Regulations No. 21-2020, the VAPP covers all internal revenue taxes, including those arising from one-time transactions (ONETT) like estate tax, donor’s tax and capital gains tax (CGT) for the calendar year 2018 and fiscal years ending July 31, 2018 up to June 30, 2019.
Any taxpayer who underpaid taxes or failed to file returns can avail of the VAPP. Even taxpayers with ongoing tax audits can avail of the program, except if the assessment has become final and executory by Sept. 20, 2020, or if the investigation is due to an informant, or involves fraud, tax evasion or other criminal tax offenses.
Those without existing audits for 2018 will get immunity from audit upon successful availment of the VAPP. For those with ongoing 2018 tax investigations, the audit shall be suspended upon availment, while the VAPP application is under evaluation. It will resume only if availment is found to be invalid. Once the Certificate of Availment is issued, the assessment notices shall be withdrawn.
For income tax, value-added tax (VAT), percentage, excise and documentary stamp taxes (DST), the amounts to be paid shall be based on a percentage of the 2018 gross sales (1%-5%) or taxable net income (5%-9%), whichever is higher, but in no case shall the amount be less than P75,000 for individuals, estates and trusts or the prescribed minimum amount for corporations (P100,000 for those with subscribed capital of P5 million and less, up to P1 million for those with subscribed capital of more than P50 million).
The percentages shall be based on the increase or decrease in the taxpayer’s total taxes due from 2017 to 2018. The percentage is preferentially lower for those with higher increase in taxes paid over the two years, and higher for those exhibiting a downward trend.
Note that taxpayers who failed to file 2018 returns for the above taxes can still avail of the program, but should first file the unfiled tax returns and pay the taxes due, plus the penalties.
For final and creditable withholding taxes, the amount to be paid shall be 5% of the total basic withholding tax remittance for the taxable year 2018.
For ONETT taxes, the amount to be paid shall be the unpaid basic tax due, plus 5%.
True to the objective of the program, all VAPP payments should be in cash; use of tax debit memos is not allowed. Moreover, VAPP availment is considered a waiver of the right to claim refunds on erroneous payments.
DOCUMENTS AND PROCEDURES
Taxpayers who wish to avail of the VAPP should file BIR Form No. 2119 personally or via courier, together with the following attachments:
o BIR Form No. 0622 with proof of payment of the taxes;
o Tax returns and proof of payment for 2017 and 2018, and Audited Financial Statements, if availing of the VAPP for income, VAT, percentage, excise taxes and DST;
o Remittance returns and proof of payment of final and creditable withholding taxes, if availing of the VAPP for such taxes;
o BIR Form 0605 and proof of payment of deficiency tax, with or without an assessment notice, if any, for the covered period;
o ONETT tax returns with documentary support for the transactions, if availing of the VAPP for ONETT.
Qualified taxpayers can avail of the program from Sept. 20 until Dec. 31, unless extended.
The BIR has 30 working days from receipt of the application to evaluate and approve availment. The Certificate of Availment, issued within three working days from approval, serves as proof of the taxpayer’s availment and entitlement to the audit-immunity privileges under the program. There is no deemed approval after the lapse of the 30-day review period. Thus, taxpayers will have to secure the Certificate of Availment to ensure that they are entitled to the benefits.
The Certificate of Availment can only be invalidated in case of non-remittance of taxes withheld or if there is strong evidence of under-declaration of income by more than 30%, based on a written report by a revenue official.
If there are defects in the availment like computation errors on the taxes due, mis-application of rates or discrepancies in the base amounts used, the BIR shall notify the taxpayer via e-mail so the errors are rectified and deficiencies are paid within 10 working days. Inaction by the taxpayer within the 10-day period would result in the denial of availment.
One thing to note here is that unlike the Tax Amnesty, the VAPP does not have a pre-approval process. Voluntary payments are made before validation so one must be cautious since availments later found to be defective (and not rectified within the 10-day window) will get disqualified. While amounts paid may be applied against deficiency taxes from 2018 audits, it would be such a waste to go through the process of availing and not get the audit immunity and immediate resolution that the program affords just because of a mathematical error as may be the case.
The BIR has granted similar programs in the past. It’s safe to say though that the 2020 VAPP may be the most pivotal and most welcome. Nearing the last quarter of 2020 with COVID-19 still prevalent, this may be the BIR’s last-ditch effort to raise funds. With the increase in revenue resting on the effectiveness of the program, maybe the BIR should also allow electronic filing of Form 2119 and supporting documents. That way, taxpayers can avail more easily and evaluations can be quicker. While submission via courier is allowed, taxpayers may still need received-copies of the application to suspend ongoing audits.
With the General Tax Amnesty vetoed last year, this is an opportunity for taxpayers to minimize the inconvenience of tax audits, even if it’s just for 2018. But as in any voluntary assessment, taxpayers should still make a careful evaluation of the reduced tax payable against possible deficiency tax liabilities to determine if availment is the best option.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Maria Jonas Yap is a Senior Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network.