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Posts Tagged ‘BIR seminars 2012’

28
July

Books of Accounts of Taxpayers in the Philippines

All persons engaged in trade or business, or in the practice of profession registered with the Bureau of internal Revenue (BIR) are required to maintain books of accounts. Books of accounts are required to be registered with the BIR and is where your records all financial transactions about your business.  Entries in the books of accounts are matters of past transactions and events and are required to be supported by documents and papers such as official receipts, sales invoices, vouchers, and other related documents and papers evidencing completed business transactions.  Your books of accounts will tell whether you paid the rightful amount of taxes due to the BIR so extra care and effort should be exerted in preparing the same to avoid unnecessary penalties.

The BIR allows three types of books of accounts  – (1) manual books of accounts, (2) computerized books of accounts, and (3) loose-leaf books of accounts. It is the taxpayer who determines which of the three types would he adopt. However, Large Taxpayers duly notified by the BIR are mandated to use computerized accounting system. Of course, failure to maintain books of accounts is subject to penalties, or worst, imprisonment for willful and fraudulent intent to evade taxes.

Manual books of accounts

These are the readily available in the market and compiled ones you can normally buy from bookstores pre-printed with the corresponding names – Journal, Ledger, Columnar Journals, etc. Entries in the books of accounts based on the business documents and papers are recorded in a handwritten manner. You register the same initially after the release of your BIR Certificate of Registration. As soon as the pages are consumed, you are allowed to register additional volumes.

 Computerized books of accounts

This represents the series of programs and operations configured into an accounting system and duly registered with the BIR. Upon registration, BIR will verify its capability to process the information accurately and the same will be undertaken through their developing a deeper understanding of the process and through some walk-through tests. This normally requires some amount of investment depending on the complexity of your operations. You can either secure the services of an IT-expert on accounting systems development customized to the complexities of your business operations, or you can simply buy readily available accounting systems in the market – e.g. QuickBooks, Peachtree, myob, zero, sap, etc. BIR registration of systems bough in the market may seem to be easier because of BIR’s familiarity in other application for registrations of other taxpayers, as compared to customized accounting systems that has to go through a thorough system evaluation by the BIR.

Loose-leaf books of accounts

This refers to loose sheets of computer printed books of accounts not generated under a computerized books of accounts. In other words, this is not a computerized accounting system simply printed, but, are simply computerized instead of being handwritten. For BIR registration, the BIR will require you to justify the need to adopt the same in lieu of the manual or computerized books. You will likewise need to present a sample print outs. Said sample print-outs will be book-bound and will be submitted to the BIR for stamping.

As to component parts, such books of accounts would depend on their BIR registration – value added tax (VAT) or other percentage tax (OPT or Non-VAT). VAT registered is normally required to maintains six (6) components, while OPT or NON-VAT registered taxpayers are normally required to maintain at least four (4) components as follows:

For VAT and Non-VAT or OPT registered

  • Journal
  • Ledger
  • Cash Receipts Books
  • Cash Disbursements Books

For VAT Registered

  • Subsidiary sales journal
  • Subsidiary purchases journal

Please note that keeping books of accounts is critical for your business because it is where all your business transactions are recorded. Based on such records, tax returns and other tax compliance matters are prepared. If your bookkeeper prepares your returns without any books of accounts as basis, I suggest you consider securing their explanation as to the basis of your returns because it appears to be risky.

Books of accounts will need to be audited by an independent Certified Public Accountant (CPA) at the end of the taxable year as a matter of BIR requirement once your quarterly gross sales or receipts or earnings exceed P150,000.00, except, sole proprietors who opted for optional standard deduction. In an audit, the independent CPA or auditor will determine whether or not your books of accounts are prepared in accordance with the prescribed accounting rules – Philippine Financial Reporting Standards (PFRS). Audited Financial Statements will then be issued and will be attached to the annual income tax return (ITR) for filing with the BIR.

As a check and balance of your tax compliance, the BIR has the right to examine your books of accounts within three (3) years from date tax returns are required to be filed or from late filing of tax returns. Fraudulent returns or failure to file returns could be assessed within ten (10) years from discovery of fraud or falsity.  During tax examinations of BIR, their tax auditors will conduct the verification and assessments through the books of accounts. Books of accounts are the responsibility of the taxpayer and it would not matter to the BIR who your bookkeeper is. In case of erroneous entries, BIR will run after you and not your retainer paid bookkeeper or employed accounting staff. Thus, we suggest that you give your best shot in choosing a good bookkeeper.

 

References for more readings…

Section 232 of the Tax Code, as amended

Revenue Regulations No. V-I

Revenue Memorandum Order (RMO) No. 20-2001, as amended by RMO No. 29-2002

Revenue Memorandum No. 13-82

 

RELATED SEMINAR – WORKSHOPS

We offer a once-a-month seminar-workshop on how to maintain your manual books of accounts that you may either do it yourself, or that you may effectively supervise the work of your accounting staff or retainer paid bookkeeper:


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.


Related Services

Bookkeeping Services. With our years of practice and being with the academe, we are confident that we could assist you maintain your books of accounts and prepare your tax returns in the light of the present rules, and regulations. We understand your financials and charges are at reasonable rates.

Tax Management and Compliance Consultancies. With our tax services, we can assist you ensure tax compliance and in the management of such continuing compliance. Proper compliance would bring about tax savings form avoiding being penalized to tax minimization strategies.

Quality Seminars and Trainings. We conduct other seminars, workshops and trainings on BIR tax compliance that you may learn to do your bookkeeping your own or at least develop working knowledge sufficient to supervise the work of your hired bookkeeper. Hereunder are our programs you could choose from:

(Post viewed 14226 times)

11
July

Internal Revenue Taxes in the Philippines

The National Internal Revenue Code of 1997 (Tax Code) under Republic Act No. 8424, as amended or the Tax Reform Act of 1997 enumerates the internal revenue taxes imposed and administered by the Bureau of Internal Revenue (BIR) under Section 21 as follows:

SEC. 21. Sources of Revenue. – The following taxes, fees and charges are deemed to be national internal revenue taxes:

(a) Income tax;
(b) Estate and donor’s taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
(g) Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue.

For better understanding, let us give you an overview of each of them. These taxes are of general tax classifications, and may contain sub classifications. In classrooms, these taxes are divided in two (2) parts – Part I for Income Taxes, and Part II – for Transfer and Business Taxes. For Accounting (BSA) and Law (LLB) course, a third part is added for the tax review covering all the two (2) parts.

Income tax. This is an annual tax on the income generated from the trade, business, profession, employment or office, dealings on property, and all other instances of flow of wealth to the taxpayer other than mere return of capital. Income tax base would depend on the nature of income, the classification of individual or corporate taxpayer, and the income tax type applicable. Income tax type is a broad classification, and sub-classifications would include – capital gains tax (CGT), minimum corporate income tax (MCIT), final taxes on passive income (FWT), withholding tax on compensation (WC), creditable or expanded withholding tax (CWT or EWT), and even stock transaction tax for sale of listed shares through the local stock exchange would fall under this classification. Read more on the following articles…Basic Income Taxation of Corporations, and Overview of Deductible Expenses in the Philippines

Estate Tax. This is levied, assessed, collected and paid upon the transfer of the net estate of every decedent, whether resident or nonresident of the Philippines based on the value of the net estate.

Donor’s Tax. This is a tax levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property (whether real or personal, tangible or intangible) by gift – direct or indirect. This is imposed on donations or gifts to another who accepts the same. Tax would depend on the citizenship or residence of donor, the relationship to the donee, and the nature of the property. Donations to relatives by a single donor is exempt to the extent of P100,000.00 within every calendar year. Read more on the Overview of Donor’s Tax in the Philippines.

Value-added tax. This is imposed upon any person, who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods. This is an indirect tax and is normally passed on to the buyer. As a consumption tax, the ultimate consumer shoulders that VAT imposed on the goods or service along the distribution line. Read more on the Overview of Value Added Tax in the Philippines.

Other percentage tax. Is a business tax like value-added tax (VAT) that is imposed upon persons whose business is normally subject to VAT, but, whose gross sales or receipts does not exceed P1,919,500.00 within 12 months. This is likewise imposed upon specific entities selected by law like banks, common carriers irregardless of gross sales or gross receipts within the 12-month period.Read more on the Overview of Percentage Tax in the Philippines.

Excise tax. This tax apply to certain goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and things imported. This is imposed in addition to the value added tax. Examples of this are sin taxes imposed on cigars, cigarettes, and alcoholic products.

Documentary stamp tax. This is a tax imposed upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers or the obligation, right or property incident thereto. Either of parties to the taxable document may be held liable and if one is exempt, the other shall be held liable. Example of this is the documentary stamp tax (DST) on lease agreements of office space, business loans and advances, sales of real properties in the Philippines, issuance of shares of stock. Read more on the Overview of Documentary Stamp Tax in the Philippines.

Other taxes. This is a catch all enumeration for those taxes that may later be imposed.

The above are enumeration of internal revenue taxes imposed by the Bureau of Internal Revenue under the National Internal Revenue Code. Some taxes may apply to your business, but the same may be administered by other government agencies like Bureau of Customs on import and export transactions, and the Local Government Units like on business taxes, real property taxes.


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.


Related Services

Quality Seminars and Trainings. We conduct seminars, workshops and trainings on BIR tax compliance that you may learn to do your bookkeeping your own or at least develop working knowledge sufficient to supervise the work of your hired bookkeeper. Hereunder are our programs you could choose from:

Tax Management and Compliance Consultancies. With our tax services, we can assist you ensure tax compliance and in the management of such continuing compliance. Proper compliance would bring about tax savings form avoiding being penalized to tax minimization strategies.

Bookkeeping Services. With our years of practice and being with the academe, we are confident that we could assist you maintain your books of accounts and prepare your tax returns in the light of the present rules, and regulations. We understand your financials and charges are at reasonable rates.(Post viewed 2573 times)

09
July

Tax Compliance of Freelancers in the Philippines

By: Garry S. Pagaspas

As Wikipedia.Org defines the term “Freelancer”, and hereunder we quote:

“A freelancerfreelance worker, or freelance is somebody who is self-employed and is not committed to a particular employer long term. These workers are often represented by a company or an agency that resells their labor and that of others to its clients with or without project management and labor contributed by its regular employees. Others are completely independent. ‘Independent contractor” would be the term used in a higher register of English.

Fields where freelancing is common include;  music, journalism, publishing, screenwriting, film making, acting, photojournalism, cosmetics, fragrances, editing, event planning, event management, copy editing, proofreading, indexing, copy writing, computer programming, web design, graphic design, website development, consulting, tour guiding, video editing,video production and translating.”

It seems that the freelancer is a broad term applied to self-employed individuals or individuals hired as independent contractors and not as an employee of the other contracting party. For tax purposes, they are termed as “sole proprietors” and in this article, let us share you the related tax compliance and what taxes are you required to pay as a self-employed freelance in the service industry.

1. Payment of registration fees – P500.00 annually. 

Registration of your habitual freelance or self-employed is the first step to proper tax compliance. To register, you fill-out BIR Form No. 1901 for filing with the BIR along with the required attachments enumerated at the back of the form. One attachment is the BIR Form No. 0605 duly received by the BIR accredited bank covering your location after payment of P500.oo annual registration fees. In BIR Form No. 1901, you will choose the tax types applicable to you and for regular filing with the BIR. Check only those that are mostly applicable and beneficial to you to avoid the inconvenience of filing unnecessary tax returns. If BIR will do the checking, we suggest you be inquisitive as to the implications that you be aware.

2. Registering official receipts

After release of the BIR Certificate of Registration, you will be required to register Official Receipts (O.R.) that you issue every collection from your freelancing business. The fact that your client or customer did not ask for BIR official receipts will not excuse you from issuing a BIR registered O.R., and this applies even if your client or customer are based abroad. If you will be caught not issuing O.R., BIR may penalize you P1,000.00 for every collection you failed to issue O.R., sanction you under Oplan Kandado program, or worst, charge you tax evasion for imprisonment on fraud and willful attempt to evade taxes. BIR has accredited printing companies and the same will normally assist you for securing an Authority to Print (ATP). Normal requirement is at least ten (10) booklets and costs ranges from P800.00 to P1,500.00 a booklet.

3. Registering and maintaining books of accounts

This is also secured after the release of your BIR Certificate of registration and the cost is minimal – P30 to P60 a booklet. The number would depend on the nature of your registration as follows – four (4) books for non-VAT, and six (6) books for VAT-registered.

  • Journal
  • Ledger
  • Cash receipts book
  • Cash disbursements book
  • Subsidiary sales journal (additional for VAT registered)
  • Subsidiary purchases journal (additional for VAT registered)
On the books you record the financial matters of your freelancing separate and distinct from your personal expenses. Collections are recorded as revenue, business expenses are recorded as allowable deductions. On the other hand, use of collections for personal expenses are recorded as withdrawals of capitalization and not as business expenses. You do not file this books of accounts along with the returns but you are required to keep this for at least three (3) years so that if you are lucky enough to be examined, the BIR will scrutinize your books to determine if you timely paid the right taxes.
You can do the bookkeeping your own, or you can hire a good bookkeeper for the purpose. If you hire one, we suggest you develop a working knowledge that you may learn in a number of ways.

4. Payment of business taxes – 12% value added tax, or 3% percentage tax;

For being habitually engaged in trade or business, or practice of profession, you will be liable for business taxes. In short, you pay business tax because you do business as a freelancer and it would not matter if you actually earn or not, after deducting business expenses for as long as you have gross receipts from freelancing business. This is where misconception lies for some – they do not wish to pay because they earn less than their expenses. Business tax in based in the gross receipts or gross sales you make, and not on the net income you make.

In general, if your annual gross receipts (services) or gross sales (goods) exceeds P1,919,500 (effective 2012 and onwards), you will be liable for 12% VAT. In which case, you must be a VAT-registered where you compute VAT due based on the difference between output VAT (12% VAT on your gross receipts/sales) and input tax (12% VAT on your purchases from VAT-registered duly supported by VAT-registered receipts or invoices. On the other hand, if you do not exceed P1,919,500 and non-VAT or other percentage tax registered, then, you will be liable for 3% percentage tax based on your gross receipts. If you registered for non-VAT and later exceeded the VAT threshold of P1,919,500, then, you are mandated to update registration to VAT using BIR Form No. 1905 and avail of the transitional input VAT.

You file and pay percentage tax return or BIR Form No. 2551M not later than the 20th day of the month following the applicable month. On the other hand, you file and pay monthly VAT return or BIR Form No. 2550M not later than the 20th day of the month following the applicable month, and the quarterly VAT return BIR Form No. 2550Q not later than the 25th day of the month following the applicable quarter. Likewise, if you are a VAT registered, you will be required to submit a summary list of sales and purchases, and issue VAT O.R. with VAT separately shown. Please note that every failure is subject to penalty so do not miss out.

5. Withholding taxes

In paying some expenses, you are automatically appointed by the BIR as a withholding tax agent. If you have some employees, you are required to withhold tax on compensation every payroll, remit monthly using BIR Form No. 1601C with a summary return at the end of the year using BIR Form No. 1604CF and issue withholding tax certificates to employees using BIR Form No. 2316 annually or after separation from employment. If your salary to them is a minimum wage only, then, the same is exempt from withholding tax, including the holiday pay, hazard pay, overtime pay, and night shift differential. Should you provide de minimis benefits, the same is also not exempt from withholding.

For specific expenses, you will be required to withhold expanded withholding  taxes  like rental payment of 5%, professional fees of your bookkeeper and other professionals you hired 10%/15%, commission of 10%, and the likes specified in Revenue Regulations No. 2-98, as amended. Withholding is based on the amount you paid, excluding VAT, if any, and amounts paid should also be issued O.R. by your service providers. You will be required remit monthly expanded withholding taxes using BIR Form No. 1601E with a summary return at the end of the year using BIR Form No. 1604E and issue withholding tax certificates to payees using BIR Form No. 2307 quarterly or every after payment.

6. Filing and payment of income taxes

You are likewise required to file and pay quarterly and annual income taxes based on taxable net income at the rate of  5-32% using the tax table prescribed by the BIR. You pay income tax if your free lancing generated taxable income measured by the difference between your gross receipts and deductible expenses – business expenses and personal exemptions of p50,000 a year and P25,000 for every qualified dependent child up to four (4).  If you were withheld 10% or 15% or 2% upon your collections, please secure your BIR Form No. 2307 because they are your advance income tax payments deductible from your income tax returns.

Quarterly taxable net income is the difference between your gross receipts and business expenses, and is required to be filed not later than 15th day of the month following the end of applicable quarter using BIR Form No. 1701Q. Annual income tax return is filed not later than April 15 after the end of the applicable calendar year.

7. Audited financial statements (AFS)

If your gross receipts in any one quarter exceeds P150,000.00, your annual income tax return must be accompanied by a financial statements audited by an independent certified public accountant, except if you opted for optional standard deduction (OSD) in your income tax returns, where, in some instances, you may find some tax savings under OSD. Your bookkeeper cannot make the audit because of the requirement of independence in mental attitude in our profession, so it will normally refer your account to another auditor. AFS is not just for simple compliance. It could serve as your opportunity for check and balance to determine whether your account had been properly handled, and establish the credibility of your financials with the government agencies and third parties, such as when securing financing with banks and financing institutions. This will cost you some amount based on the volume of your transactions.

8. Local tax compliance

You will likewise be required to secure annual community tax certificates, and business permits with the municipality or city of location. Please note that, as a rule, a business permit is a requirement for legality and you business or undertaking without it will be considered illegal. It may cost you some amount and an ounce of effort to secure one. You can either do it yourself, or secure some service providers actively engaged to secure one as they are more familiar with the process and the requirements. This will save you more headaches and irritations in processing.

Summary

The above only enumerates the most material tax types and there could be more depending on the transactions, like documentary stamp tax on lease agreements. For start-up freelancers, tax compliance is the least thing that comes to priority but the most important consideration that you cannot go away with. For me, tax compliance and trade, business, or profession always go hand in hand with. In all you business endeavors, you must take into account tax compliance so you can really enjoy the full benefits of your success. I feel pity those who succeed in the business endeavors after years, but, suddenly pulled to the ground by tax evasion charges. BIR is now aggressive on tax administration and more taxpayers and even CPAs are becoming targets of tax evasion. It will not only destroy your savings invested in your properties, but, also the credibility of your name that you have long developed through he years. It takes time to develop one, but, so easy to destroy.


(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged in active tax practice for more than seven (7) years now and a professor of taxation for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance and tax management resulting to tax savings rendering tax studies, opinions, consultancies and other related services. For comments, you may please send mail at garry.pagaspas@taxacctgcenter.org.)

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.


Related Services

Quality Seminars and Trainings. We conduct seminars, workshops and trainings on BIR tax compliance that you may learn to do your bookkeeping your own or at least develop working knowledge sufficient to supervise the work of your hired bookkeeper. Hereunder are our programs you could choose from:

Bookkeeping Services. With our years of practice and being with the academe, we are confident that we could assist you maintain your books of accounts and prepare your tax returns in the light of the present rules, and regulations. We understand your financials and charges are at reasonable rates.

Tax Management and Compliance Consultancies. With our tax services, we can assist you ensure tax compliance and in the management of such continuing compliance. Proper compliance would bring about tax savings form avoiding being penalized to tax minimization strategies.(Post viewed 7537 times)

03
July

7 Features of Withholding Tax System in the Philippines

Withholding tax is the most basic tax type that each and every taxpayer engaged in trade or business or in the practice of profession must learn. Upon registration of their respective business entities, withholding tax type is a must and it may come in three (3) tax types as sub classifications as follows:

  1. Expanded withholding tax (EWT) or Creditable withholding tax (CWT) under monthly BIR Form No. 1601E and annual BIR Form No. 1604E with Alphalist of Payees;
  2. Withholding tax on compensation (WC) under monthly BIR Form No. 1601C and part of annual BIR Form No. 1604CF with Alphalist of Employees;
  3. Final withholding tax (FWT) under monthly BIR Form No. 1601F and part of annual BIR No. 1604CF with Alphalist of Employees/Payees;

To develop a deeper understanding of the withholding tax system in the Philippines, let us discuss some of its basic features.

1. Automatic constitution of resident payor of income as withholding agents.

By force of the law, a Philippine resident payor of specific income payments are mandated by law to withhold, whether he likes it or not. Non-resident foreign corporations and non-resident alien payors are not included because of obvious logical reasons – Philippine government does not have jurisdiction over them, and could not run after in case of non-compliance. Specific items of income payments are enumerated in the regulations and once the payment is made upon such items, withholding taxes applies. Example, if a taxpayer pays a rental for its office space, it is mandated to withhold 5% of the gross rental payment.

2. A system of advance collection of payee’s income tax liability

What is withheld is the income tax liability of the payee upon actual payment or upon accrual. Income tax returns are filed quarterly and annual and under pay-as-you-file system, income taxes are paid upon filing. However, with the withholding tax, the government gets the income tax on the 10th day of the month following the month of payment or accrual, ahead of the quarterly payment of payees income. Example, Company A pays Atty. A professional fees amounting to P100,000 on January 2012 and the applicable withholding tax of 15% or P15,000 was withheld.  Atty. A is required to file and pay quarterly income tax (BIR Form No. 1701Q) on April 15, 2012, but, before he could file and pay, the government already collected in advance the P15,000 that was remitted by A Company not later than February 10, 2012 (BIR Form 1601E).

3. Amount withheld is a trust fund for the government

At provided in Section 57(A) of the Tax Code, the taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers. The withholding agent, as trustee of the funds withheld cannot use the funds in any other purpose, but should remit the same to the Bureau of Internal Revenue (BIR) through the authorized agent banks (AABs) or other payment facilities.

4. Amount withheld is creditable or final income tax due of the payees.

Expanded withholding tax rates are carefully studied and crafted to reasonably estimate payee”s income tax liability depending on the industry type and nature of payment. This is the reason why withholding tax rates are varying and is challenging to memorize for proper application. Upon filing of quarterly and/or annual income tax of the payee, the amount withheld will be deducted from its income tax liabilities and there would be fewer amounts due because of the withholding tax duly supported by creditable withholding tax certificates – BIR Form No. 2307/2316. On the other hand, final withholding taxes are the same rates imposed in the Tax Code for specific payments. As such, they constitute full payment of payees income tax and no additional tax liabilities would arise under final withholding tax on top of the amount withheld.

5. Check and balance mechanism

Monthly withholding tax returns of the payor attaches a monthly alphalist of payees (MAP) with the details of the payee and the income payments – the name address of payee, and the amounts of income payment and corresponding tax withheld. When the payee files a quarterly and annual income tax returns, it attaches the summary alphalist of  withholding taxes (SAWT) with the details of the payor and the income payment.  With these reports, the BIR could easily determine whether or not the payee declared the income payment, or whether or not the payor correctly declared the expense. As such, this becomes an easy tool in the third party information procedures of the BIR to catch up tax evaders.

6. A mandatory requirement for deductibility of an expense.

In effect, Section 34(K) of the tax Code, as amended, provides that if an expense is subject to withholding tax, it will not be allowed as a deduction for income tax unless it could be shown that withholding taxes has been paid to the BIR. This explains why assessment of withholding tax has a dual effect – disallowance of expense deduction in income tax computation for failure to withhold, and assessment for withholding tax liabilities. Upon payment of withholding taxes, the income tax assessment based on failure to withhold is automatically dropped.

7. Exclusive enumeration of items subject to withholding taxes.

Revenue Regulations 2-98, as amended, is the main regulation enumerating the income payments subject to creditable withholding tax. Enumeration of expanded withholding tax therein is exclusive and whatever is not included is deemed not subject to creditable withholding tax. This means to say that as a rule, not all expenses are subject to withholding. Exception to this rule is the rule on Top Twenty Thousand Corporation (TTC) or Top Five Thousand Individuals duly selected and notified as such by the BIR. On top of those enumerated in Revenue Regulations 2-98, as amended, they are mandated to withhold on income payments to regular supplies of goods – 1% or of services – 2%, and from casual purchases amounting to P10,000 in a single transaction.

Failure of the taxpayer to comply the obligation to withhold would expose a taxpayer-agent with the following consequences:

  • Non-deductibility of a business expense for income tax computation for failure to withhold until after payment of the withholding tax and related penalties;
  • Payment of the basic withholding tax that should have been withheld;
  • One-time surcharge of 25%, or 50% for willful neglect or fraudulent filing;
  • Interest on 20% on annual basis based on the basic withholding tax that should have been withheld;
  • Compromise penalties ranging from P200 to P50,000 based on the amount of basic withholding tax that should have been withheld;
  • Or worst, criminal prosecution and imprisonment for willful neglect or fraudulent filing of withholding tax returns

You would not enjoy paying the above penalties, and wasting your hard earned money from your business undertakings and simple ignorance of the above obligation. It’s the proper time now to educate and you have all the time and opportunity to do it before it is too late.


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.


Related Services

Quality Seminars, Trainings and Workshops. We conduct tax seminars and workshops on withholding tax such as the following:

Tax Management and Compliance Consultancies. With our tax services, we can assist you ensure tax compliance and in the management of such continuing compliance. Proper compliance would bring about tax savings form avoiding being penalized to tax minimization strategies. Likewise, we could assist you in securing a BIR ruling confirming the applicable tax exemptions.(Post viewed 10832 times)

22
June

8 Ways to Learn BIR Tax Compliance

By: Garry S. Pagaspas

As the saying goes:

“The only things certain in life are death and taxes” – Benjamin Franklin

“There is nothing permanent except change” – Heraclitus of Ephesus

In my years of tax practice, I have come to embrace the above sayings describing the need to learn taxation as applied to business, and the need for a continuing knowledge to fuel business success. Obviously, knowledge of how taxes apply would be a very big advantage and lack of it would be too risky as resources are at stake to be wasted on penalties. I think, you would not like it when your hard earned money will just be wasted on government coffers through penalties or worst, on private pockets, and you cannot justify non-compliance with a simple ignorance. As our laws puts it:

“Ignorance of the law excuses no one from compliance therewith” (Article 3, New Civil Code of the Philippines)

As a guide on how to achieve the required knowledge on tax compliance required by the tax authorities – e.g. the Bureau of Internal Revenue (BIR), let us take up the following ways and check out for yourself the most applicable practical way.

  •  Earn an accounting degree (Bachelor of Science in Accountancy or BSA)

Part of the accounting degree curriculum are three (3) tax subjects – Income taxation, Transfer and Business Taxation, and Taxation Review so after passing the subjects, you will be knowledgeable in tax applications. Should you decide to become a Certified Public Accountant (CPA) and be one of us, you may have to undergo a CPA review course for around six (6) months where you will be exposed to different tax concepts and applications to enhance your knowledge. Notably, BSA degree is now a five-year course in most universities, and tuition fees are towering. With a BSA degree or a CPA title, you will notice the material advantage when you proceed with your law degree (College of Law or LLB) because same tax subjects will be taken up, though, in a more technical manner.

  • Read tax text books and references

Various references are out on the market now and you could easily get taxation textbooks in bookstores nationwide. Depending on your feel of a textbook, you could choose from a paper bound to hard bound, from a made easy write-up to a more technical write-up, or from a BSA textbook or a law textbook. What I miss on the textbooks is one that is focused on basic business taxation because most textbooks in the market now are academic textbooks – either for college commerce students, or for law students. Cost wise, textbooks and references may not cost you that much. BSA textbook ranges from P300 to P600 a copy, while a law textbook may range from P500 to P1,500. Last piece of note, always be mindful of the textbook edition because tax rules are constantly changing and you might be reading an old textbook with old rules.

I am inclined to write one for SMEs, a basic taxation guide, but time is much of a constraint. With my involvement in the academe, I would feel that this would make my life more easier, and at the same time, this may become a ready reference for my seminar participants. Hopefully, I will finish one in the near future. Online taxation textbooks nowadays, are not yet popular but I have seen some few attempt like in TaxBukPinoy.Com – Online Pinoy Taxation Textbook For Everyone. This would also be good to enrich online resources and bring tax lessons nearer to entrepreneurs and students who consume most of the time online. The online concept is similar to that of an Engineer friend in his Mathlino.Com for engineering field.

  • Attend short-term tax courses – seminars, trainings, workshops

Presently, more seminar and training entities – profit and non-for profit oriented are coming into existence.Trainings, workshops, and seminars ranges from the basic business taxation programs to specialized programs in income taxation, business taxation, and other tax compliance requirements. Required investment ranges from P2,500 to P5,000 a day for those catering SMEs using their own seminar venues, and P5,000 to P15,000 a day for those using Five Star hotels as venue. For me, much concern and emphasis should be placed on the learning so I would suggest you get the details or outline of the program before enrollment.

Tax and Accounting Center, Inc. (TACI) is one of them who advocates on educating the taxpayers – e.g. small and medium entrepreneurs (SMEs) about the tax implications of their business transactions, the proper tax compliance that they ought to know, the tax saving opportunities that may enjoy, and the continuing tax knowledge they must possess for better business advantage. If you would wish to view TACI programs, please click this link – Quality Seminars, Trainings, and Workshops.

  • Hire private tax tutors

Tutorial does not sound new to us also. If I remember it right, even our very own national hero, Dr. Jose P. Rizal, had secured some tutorials during his studies. I subscribe on the tag line – “heroes are not born, they are made“. Under this, the learning is at its peak because the approach is more personalized and you can control the speed of the discussions to catch up with the tutor. Questions can always be raised all throughout the discussions, and venue could be at your own place and convenience. Tutorial fees also varies depending on the technicalities of the topic, and the qualifications of the tutor. I would estimate the range to start from P300 per hour to P1,000 per hour.

  • Hire a tax consultant

Tax consultants are those who possess the technical knowledge in the application of the tax laws, rules, and regulations. For those who would represent with the BIR in behalf of the taxpayers and those Certified Public Accountants (CPAs) who would sign on the audited financial statements of taxpayers, they are required to be BIR accredited tax agents. Consultants are normally called in to render opinions, consultancies, and technical tax matters to guide taxpayers in the application of the tax rules and avoid unnecessary penalties.

Professional fees of tax consultants also varies. Some charges based on time charges, while some are output based, and some arrangements are on retainership for a continuing tax consultancy. Under this retainership, taxpayer client could ask as many questions and clarifications as it could so it will fully understand the tax rules. Tax updates applicable to taxpayer client is normally provided.

So much for the ways requiring much investment, and let us proceed with the FREE ways to learn tax compliance, or at least minimal cost using the online world. We are now in the world where almost any information you need could be sourced online.

  • Join and interact on tax forums

Online tax forums could provide you tax information on how tax compliance. These forum sites normally require a pre-registration before you could interact with the group and in most cases, topics covered in one forum may not be necessarily limited to tax compliance. Other topics could be about entrepreneurship, business issues, and up to anything under the sun. Examples of this would be the Business Forum Philippines of a co-CPA friend. You just register, read the forum rules, and interact all the way for free and without any charge.

  • Ask questions for free

Some websites are likewise designed to become a purely question and answer one. TACI for example is maintaining a website of this import in furtherance of its advocacy to assist SMEs in their knowledge in tax compliance. A simple registration is required using your valid e-mail address and once registered, you could freely post any question about tax compliance or if you have the capacity and a heart, you may help others in their questions. Site administrator visits the site once in a while see open questions and share views. Again, the same is free of charge and you could visit the same anytime – TaxAcctgCenter Forum – In every question, comes great answers.

  • Visit tax informative sites

For continues learning, you will see online numerous websites writing about recent tax issuances of the BIR and other related government agencies. Some are websites of broadsheets, law firms, accounting firms, business bloggers, and other service providers. They are just a mouse click away from your computer.

TACI has likewise provided a page for the purpose of sharing with the taxpayers, the recent tax developments and views on certain tax issues. The author is himself a contributor and you can visit the page anytime – Tax and Accounting Updates. If you have questions, clarifications and comments on the articles, you could freely fill-out the comment form for the purpose. It will not appear outright as the admin will approve it first. Another notable entreprenuerial site with helpful tax articles is the Business Tips Philippines owned by a co-CPA friend.

 

Summary

I hope the above ways would help open-up alternative for a better tax compliant taxpayer. Some would involve costs but for me, I would rather “spend to learn than spend to waste”, such as when penalties are imposed and hard earned money are wasted on them. If you do not comply and evade taxes, its just like you owed the government in a manner that when the government collects, the interest and penalties are very much more than the amount owed. Worst, you pay using your liberty and freedom as tax evasion carries an imprisonment after the criminal due process. Finally, tax compliance is like buying a peace of mind. You comply, and worry not so you have peace of mind. You do not comply and prepare your self for the headache it will bring in the future.


(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged in active tax practice for more than seven (7) years now and a professor of taxation for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance and tax management resulting to tax savings rendering tax studies, opinions, consultancies and other related services. For comments, you may please send mail at garry.pagaspas@taxacctgcenter.org.)

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.


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