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Simplification of tax returns

Simplification of tax returns by:Catherine D. Quilantang

As part of their civic duty, taxpayers are required to pay their taxes and file their tax returns.  The deadline for filing of tax returns varies depending on the type of tax due. Some of the existing tax returns are required to be filed every month while others are required to be filed on a quarterly or annual basis. With so many tax returns and other BIR reportorial requirements to be submitted by taxpayers, it is not surprising that many taxpayers commit mistakes in filling out their tax returns. Remember that for each failure to supply any information in the tax returns, a penalty of P1,000 may be imposed, while  any erroneous declaration of information in the tax returns may lead to a possible tax assessment in the future. Hence, taxpayers should make sure that they make no omissions or  erroneous declarations of information in their tax returns that would lead to a possible assessment or penalty.

Good news to the taxpayers!  The BIR is currently in the process of revising some of the tax returns with the end goal of making compliance much simpler and easier for taxpayers. The BIR has conducted several public hearings on the revised returns with the last hearing held last August 28, 2009.  Among the returns that are the subject to revision are the monthly value-added tax declaration (BIR Form No. 2550M), quarterly value-added tax return (BIR Form No. 2550Q), monthly percentage tax return (BIR Form No. 2551-M), quarterly income tax returns (BIR Form Nos. 1701Q/1702Q) and annual income tax returns (BIR Form No. 1700/1701/1702). 

A peek into the proposed revised returns would reveal that many of the schedules at the back of these returns have been deleted. This means less time will be spent in preparing these returns since there will be less information that will be required.

All of the proposed revised tax returns have new information to be filled under Part I – Background Information of the tax returns. These are the taxpayer’s Philippine Standard Industrial Classification Code (PSIC) and Philippine Standard Occupational Classification Code (PSOC) in place of its line of business. Taxpayers should know their respective PSIC and PSOC, which are usually shown in the BIR Certificate of Registration.

Also, there is only one authorized signatory of the returns, which should either be the taxpayer himself or his authorized representative or accredited tax agent. Previously,  two people were required to sign these returns, i.e., President/Vice President/Principal Officer/Accredited Tax Agent/Authorized Representative/Taxpayer and Treasurer/Assistant Treasurer. However, with respect to BIR Forms 1702 and 1702Q (Annual and Quarterly Income Tax Return for Corporations), there may be a need to reconcile the reduction of signatories to only one in these returns with the requirement under Section 52(A) of the Tax Code that the corporate quarterly and annual income tax returns should be filed by the president, vice-president or other principal officer, and shall be sworn to by such officer and by the treasurer or assistant treasurer.

In the existing monthly percentage tax return (BIR Form 2551M), the taxpayer is required to write the taxable transaction, industry classification and Alphanumeric Tax Code (ATC). In the revised draft BIR Form 2551M, the type of transaction and corresponding ATC are already provided in the returns and only needs to be ticked. Schedule 1 on the tax withheld claimed as tax credit which can be found at the back of BIR Form 2551M t , has been deleted.

A lot of information or fields as well as schedules are proposed to be deleted in the draft monthly VAT return (BIR Form 2550M). In fact, under the proposed BIR Form 2550M, VAT-registered taxpayers need only to provide information on their total sales/receipts subject to VAT, total input tax allowed to be charged against the output tax due for the month, and tax credits/payments. Information on the zero-rated and exempt sales shall no longer be required to be declared i n the monthly VAT declaration as well as the details on the input taxes to be claimed as output tax credits.
In addition, Schedules 1 to 8 have been deleted.  These are schedules for: (a) sales/receipts and output tax; (b) purchases/importation of capital goods (aggregate amount not exceeding P1 million); (c) purchases / importation of capital goods (aggregate amount exceeds P1 million); (d) input tax attributable to sales to government; (e) input tax attributable to exempt sales; (f) tax withheld claimed as tax credit; (g) schedule of advance payment; and (h) VAT withheld on sales to government.

As for the quarterly VAT returns (BIR Form 2550Q), only the schedules were removed. All current information required to be shown in the first page of BIR Form 2550Q were retained.

For the quarterly income tax return for corporations (BIR Form 1702Q), there will be new fields for the cumulative sales, other taxable income, and cost of sales/services from the previous quarter/s. Schedule 1, which shows how the minimum corporate income tax (MCIT) is computed for the quarter/s, has been recommended for deletion.

As regards the annual income tax return for corporations (BIR Form 1702), there will only be two schedules left:  Schedule I for the details on the computation of net loss carry over (NOLCO), and Schedule II for the reconciliation of net income per books against taxable income. The following information and schedules are proposed to be deleted in the revised BIR Form 1702: (a) the date of incorporation/creation; (b) schedule of sales/revenues/receipts/fees; (c) schedule of cost of sales/service; (d) schedule of non-operating and taxable other income; (e) computation of MCIT of current year; (f) computation of excess MCIT of the previous year; and (g) computation of optional standard deduction and schedule of itemized deductions.

This current endeavor of the BIR to simplify tax returns is highly commendable. I believe that once these simplified tax returns are available for use, taxpayers will be able to prepare their tax returns with less hassle and fewer errors. This will also contribute to the government’s effort to simplify doing business in the Philippines, which will help improve our competitiveness as an investment destination.

This article is not intended to be a substitute for professional advice.  For comments and inquiries, you may e-mail the author at Catherine.Quilantang@ph.gt.com.  For other tax concerns, please check out our other tax services.