In an effort to enhance taxpayers’ voluntary compliance of value added tax in the Philippines and prescribe certain audit of VAT returns of large value added taxpayers in the Philippines with the end view of increasing the collection, the Bureau of Internal Revenue (BIR) has recently launched a 2012 value added tax (VAT) audit program in the Philippines covering large taxpayers under Revenue Memorandum Order No. 19-2012 dated July 31 2012 (RMO No. 19-2012).
Under RMO No. 19-2012, one (1) e-Letter of Authority (eLA) duly approved by the ACIR, LTS upon the recommendation of the VAT Audit Team Heads shall be issued for each taxable quarter or semester. If a taxpayer has already been issued an eLA for all internal revenue tax liabilities for a particular period and a significant finding/s on VAT was uncovered, it should be communicated to the VAT Audit Team for possible risk identification in the current period under audit. If an eLA has already been issued under the VAT Audit Program and the taxpayer becomes a candidate for regular audit in the concerned division based on the selection criteria under the annual audit program, the request for eLA should not include the VAT liability of the taxpayer.
RMO No. 19-2012 shall cover the audit/investigation of VAT returns in the Philippines of LTS taxpayers classified under the following selection criteria:
A. High Risk Taxpayers
1. Factors/Risk Characteristics resulting to under-reporting of VAT liabilities and non-remittance of VAT collection.
2. Compliance Risk Characteristics due to non-compliance to administrative requirements.
B. Medium Risk Taxpayers – Business Issue Risks/Complex Industries due to industry issues and changes in the status/registration of business.
All audit reports shall be approved by the ACIR, LTS thru the concerned VAT Audit Team Head. The basic audit procedures prescribed in Revenue Audit Memorandum Order (RAMO) No. 1-99 and other issuances particularly those with impact on VAT audit shall be strictly observed in the conduct of the 2012 VAT audit program in the Philippines. The issuance of Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN) for deficiency VAT liabilities as a result of the audit will be in accordance with existing regulations/issuances.
Based on the findings of the VAT audit team, the taxpayer may pay or file a protest to the alleged deficiency VAT liabilities. If the taxpayer fails to settle or pay the VAT assessment or fails to file a protest within the prescribed period from receipt of the PAN, the VAT Audit Taskforce shall recommend the issuance and prepare the Final Assessment Notice (FAN) to be approved and signed by the ACIR, LTS.
This would seem to be a more aggressive approach of the BIR to impose mandatory tax compliance of value added tax rules in the Philippines applicable to large taxpayers. We would recommend large taxpayers to be keen on compliance, update themselves on the implications of the VAT rules applicable to their operations. Alternatively, they could attend seminars and workshops on value added tax in the Philippines and learn from the experts.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at firstname.lastname@example.org.
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