Tax challenges and opportunities for the new administration – INQUIRER. net

Based on the March 2022 Labor Force Survey of the Philippine Statistics Authority, there are more than 17 million informal workers, including tiangge, ambulant and street vendors, plus over 1. 3 million sari-sari stores that remain unregistered with the Bureau of Internal Revenue (BIR).

Generally, they fall under the category of micro enterprises. However , under Revenue Regulation No . 11-2000, self-employed individuals along with annual gross sales not exceeding P100, 000 are usually classified as marginal income earners. While they may also apply for Barangay Micro Business Enterprises (BMBE) certification to avail of income tax exemption, they are exempted from: P500 annual registration fee; maintaining books associated with accounts plus submitting audited financial statements; issuing official receipts; 12 percent value added taxes (VAT) or 3 percent business (percentage) tax; and expanded withholding tax.

Should we increase the income threshold to encourage the casual sector to register with BIR? The P100, 000 annual gross sales or P8, 333. 33 monthly level is even below the average daily sales of a sari-sari store.

Congress must revisit this and legislate a law redefining marginal income earners with higher annual product sales or revenue threshold from P100, 500 to P1 million, plus impose the fixed income tax of P1, 000 payable after the particular first year of operation to motivate them in order to register along with BIR, Social Security System (SSS), Pag-IBIG and Philhealth. In return, they get to file an income tax return, which they can use to open bank accounts, use for loans and formalize their source of income.

Broadening the taxpayer base must not really be confused with the particular goal of increasing taxes collections. Digital transformation must aid and further simplify both sign up and compliance.

Further, tax compliance should provide nonfiscal incentives, like access to credit or even working capital for minor income earners.

Under the BMBE Act associated with 2002, any individual or corporate taxpayer engaged in business might apply for BMBE certification provided their total assets do not exceed P3 mil. They are exempted through tax plus minimum wage law and they get access to financial assistance, training plus technology transfer.

Note, however , that the exemption is from earnings tax. Therefore , a BMBE-certified enterprise is still required in order to file and pay business tax— either 3-percent taxes quarterly if the annual gross sales or receipts do not surpass P3 million or 12-percent VAT monthly and quarterly if the yearly product sales or even receipts go beyond the P3-million threshold.

More than collecting taxes from this sector, the government must provide financial support and training programs, and other services to help them grow and sustain their businesses.

Making it easier

So, how do all of us further easily simplify tax conformity for tiny and small enterprises to formalize or register all them?

First, we need to register all gainfully employed plus self-employed individuals, including foreigners and corporations, whether they are exempt from paying income tax or not. The particular key is to have a comprehensive database based on overall population. Maybe BIR can work with the National Economic and Development Authority and use the particular Philippine Identification System in order to make sure that 100 percent of them are registered with BIR, and are given a tax identification number.

Also, the BIR can secure databases from other government agencies to compare with or even update its taxpayer data source, e. g.: Securities plus Exchange Commission, SSS, Pag-IBIG, Philhealth, Overseas Workers Welfare Administration, Department of Trade and Industry, Department of Foreign Affairs, Professional Regulatory Commission, Supreme Court, Integrated Bar of the Philippines; Google (for content creators or influencers earning royalty through YouTube); and, Lazada, Shopee, FoodPanda, Grab, Angkas along with other digital platforms or orchestrators, including online games and live-streaming apps.

Second, the authorities must offer fiscal plus nonfiscal incentives to encourage them to register, such as:

• tax holiday for the first two years or even P1 mil income associated with startups (This can still be included in the particular proposed Internet Transaction Act);
• generation of tax returns for informal sectors so they can use it to open a bank account or make an application for personal/business loan, visa, etc .;
• interest-free working funds or loan for mini enterprises payable in 2 to three years where they will be provided a target profit or even cash position to renew their mortgage or avail of more incentives; priority suppliers or contractors with regard to government procurement or projects; and,
• access to free coaching seminars, trade expos and inclusion in the database associated with registered MSMEs, which will be preferred suppliers regarding both private and public procurements.

Third, allow an optional 10 % flat taxes in lieu of almost all taxes plus remove non value-added and very costly compliance, which includes books of accounts. The requisite in order to avail associated with the flat tax must be the use of electronic invoicing and online submission of profit plus loss claims to monitor the product sales and performance from the micro and little enterprises.

Once we have addressed the tax gap from the particular unregistered, we all can focus now on undeclared revenue to broaden the tax base, which is equally important. The full implementation associated with the electronic invoicing system will be helpful as it captures actual sales of companies. Effective January 2023, the usage of e-invoicing will be mandatory intended for large taxpayers, ecommerce businesses and exporters.

Immediate priority is to revisit the threshold to get large people, as they contribute a lot more than 60 percent of total collections. If we may double the particular number associated with companies classified as large taxpayers, then BIR can clearly and easily concentrate on compliance using data analytics plus industry benchmarking.

Finally, instead of auditing the same companies every year, the BIR must adopt a risk-based audit—that means only high-risk taxpayers must be audited. And the full force of the law need to be enforced to taxes evaders in order to serve while a deterrent, i. e., deport foreign or alien individuals, dismiss or permanently disqualify general public officials and revoke the particular CPA license of accountants involved in any kind of tax evasion case.

A simplified tax regime pertaining to micro plus small enterprises will a lot more likely increase registered individual taxpayers and voluntary conformity without imposing new taxes. While the BIR will be completing the digital transformation, it must reallocate its resources plus focus on narrowing the taxes gap and broadening the particular taxpayer foundation to increase voluntary compliance without relying on random audit plus investigation, which usually result in compromises. INQ

This article reflects the personal opinion of the author and not the official stand of the Management Association associated with the Philippines or MAP. The author is member of the MAP Ease of Doing Business Committee and the founding chair/senior tax advisor of Asian Consulting Group. Feedback via

[email protected] plus [email protected]

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