In the Philippines, paying taxes has never been simple. For years, taxpayers have had to endure long queues, confusing regulations, and harsh penalties – even for minor mistakes. But with the passage of Republic Act 11976, also known as the Ease of Paying Taxes (EOPT) Act, the government is taking a major step toward simplifying the country’s tax system.
Signed into law on Jan. 5, 2024, the EOPT Act intends to streamline and modernize the tax payment process. This includes relieving taxpayers of a significant burden by eliminating the 25-percent penalty for submitting taxes at the wrong venue. Taxpayers can now file and pay taxes, either electronically or manually, at any authorized venue without worrying about penalties.
Another significant improvement is the more reasonable treatment of business expenses. Before the EOPT Act, if a taxpayer failed to withhold taxes on a certain payment, the entire expense could be disallowed – a rule that caused undue stress because of how burdensome it was financially, especially for small businesses. Today, under the new law and additional clarification provided by Revenue Memorandum Circular (RMC) 60-2024, those expenses can now be deducted as long as they are properly documented and are deemed necessary for business.
The law also introduces clearer classifications for taxpayers, grouping them into micro, small, medium and large categories based on their gross sales or receipts. This change ensures that smaller businesses are no longer burdened with the same amount of paperwork and compliance requirements imposed on large corporations. By aligning obligations with business capacity, the law promotes a more equitable and manageable tax system.
New rules on invoicing have also been introduced. Businesses that are registered under VAT are required to provide VAT invoices for each sale, whereas non-VAT sellers are required to provide official receipts for transactions totaling P500 or more, as per Revenue Regulations (RR) 7-2024 and 11-2024. This promotes better recordkeeping and supports a fairer tax system.
The law also promotes the use of platforms like eFPS and eBIRForms, especially for taxpayers comfortable with technology. These electronic filing systems help reduce errors, save time, and streamline the overall filing process. By making tax compliance more convenient, the need for in-person visits to BIR offices is also lessened.
While these reforms seem like a big step forward, there are still issues to consider. For instance, not everyone is accustomed to electronic filing, and many parts of the nation lack reliable internet access. To make the law truly effective, the government must ensure proper education and support for all taxpayers. This includes programs to improve internet access and technological literacy.
Another issue to consider under the EOPT Act is the shift to the accrual basis for recognizing gross sales for both goods and services as explained in RR 3-2024. Because of this, VAT is now due at the time the invoice is issued, regardless of whether payment has been received. As a result, taxpayers may face the burden of remitting VAT even before collecting actual income, creating financial strain and potential compliance risks.
Despite the challenges, the EOPT Act brings more meaningful changes for taxpayers and businesses by simplifying compliance and recognizing their varying capacities. While initial adjustments may be challenging, the law provides long-term benefits by creating a more efficient, inclusive, and business-friendly tax system. With proper implementation and continuous government support, it can ease the burden of compliance, making paying taxes a manageable part of doing business in the Philippines.
Aira Sebastian is a Tax Associate from Tax Group of R.G. Manabat & Co. (KPMG in the Philippines), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Aira Sebastian or Manuel Salvador III through [email protected], social media or visit www.home.kpmg/ph.
