Guide to the Ease of Paying Taxes Act (EOPT)

The Philippines recently took a significant step towards modernising and simplifying its tax system with the Ease of Doing Business Act (EOPT), officially known as Republic Act No. 11976. Signed into law in January 2024, the EOPT aims to streamline tax processes, ease compliance burdens, and strengthen taxpayer rights.

Below, we highlight the EOPT’s key provisions and implications, helping simplify compliance for taxpayers like you. 

Ease of Paying Taxes Act: Key Provisions  

Here’s what you need to know about the EOPT:

1. Taxpayer Classification

One of the most notable changes introduced by the EOPT is the classification of taxpayers into four categories based on annual gross sales or receipts: 

• Micro: Gross sales of less than PHP3 million

• Small: Gross sales between PHP3 million and PHP20 million

• Medium: Gross sales between PHP20 to PHP1 billion

• Large: Gross sales of PHP1 billion or more

Each category enjoys specific benefits and simplified requirements, making tax compliance much easier than the previous framework. For instance, micro and small taxpayers, which make up 99% of Philippine business establishments, will benefit from the following concessions:

• Reduced rate of 10% for civil penalties

• Reduced rate of 50% on the interest rate

• Reduced rate of PHP500 for failure to file information on returns

In addition, micro and small businesses will now only need to fill out a two-page ITR, significantly reducing paperwork compared to the previous format. 

2. Filing and Payment

The EOPT emphasises convenience, offering taxpayers multiple filing and payment options. To encourage compliance, taxpayers can pay through the following options:

• Revenue District Office (RDO)

• Authorised agent banks

• Accredited software providers

Previously, taxes must be paid in the RDO with jurisdiction over a business’ place of registration, with a massive 25% surcharge for wrong-venue filings/payments. The EOPT and its “file and pay anywhere” provision eliminates the need to visit BIR offices, saving time and resources while streamlining tax compliance. 

Moreover, the BIR will no longer collect the Annual Registration Fee. Before the EOPT, businesses had to file BIR Form 0605 and pay PHP500 every year. 

3. Withholding Tax 

Under the previous tax rules, businesses can only deduct income payments if the appropriate withholding tax has already been withheld. Under the simplified tax rules, businesses can deduct and withhold tax at the time when the income becomes payable. 

This is a significant change because, in the past, taxpayers under investigation were left with little choice but to pay the withholding tax in question to benefit from income payment deductions.  

4. VAT 

Before the new law, the tax code required businesses to present gross receipts to prove input VAT. Under the EOPT, taxpayers only need VAT invoices to prove input VAT. In addition, the sale, barter, or lease of goods, properties, and services worth less than PHP3 million are now VAT-exempt. 

However, it’s important to note that VAT payment is via accrual. This means that VAT must be declared and paid even for uncollected receivables. To compensate for potential cash flow issues, the EOPT allows taxpayers to deduct output VAT on uncollected receivables from their output VAT in the next quarter, subject to the following conditions:

• The seller has fully paid the VAT on the transaction

• The VAT of the uncollected receivable has not been claimed as an allowable deduction

The EOPT has also removed the invoicing requirement to specify the purchaser’s business style for sales of PHP1,000 or more. 

5. VAT Refunds

The simplified taxation rules under the EOPT extend to tax refund claims. For instance, VAT refund claims are now classified as low-, medium-, and high-risk claims, depending on factors that include the following:

• Refund claim amount

• Claimant’s tax compliance history

• Frequency of filing refund claims

Under the EOPT, only medium- and high-risk claims are subject to BIR audits and verification processes. 

6. Refund Process

There are no changes to the prescriptive period for filing refund claims, remaining at two years from the date of payment. However, it’s important to note that this is only applicable to administrative refund claims and will no longer apply to judicial claims. 

Here are other notable provisions concerning tax refunds:

• Refunds of excess input tax: If the BIR Commissioner fails to act on a claim within 90 days from the filing date, the taxpayer may appeal the inaction with the Court of Tax Appeals (CTA). 

• Refunds of taxes erroneously or illegally collected: If the BIR Commissioner fails to act on a claim within 180 days from the filing date, the taxpayer may appeal the inaction with the CTA. 

Judicial appeals must be made within 30 days after the taxpayer receives the full or partial denial of the claim or following inaction within 180 days from the filing date. 

7. BIR Registration

Taxpayers can now register, de-register, and transfer BIR registration by filing the prescribed form electronically or manually. While those with ongoing tax investigation cases may still register with another RDO, the office which initiated the audit investigation will continue to oversee the process. 

8. Recordkeeping 

Under the EOPT, businesses must preserve their books of accounts for five years from the date of filing. Previously, the BIR mandated taxpayers to keep their records for 10 years.   

The EOPT signifies a significant step towards a more efficient and taxpayer-friendly tax system in the Philippines. Understanding these key provisions will enable taxpayers to navigate the new regulations and ensure compliance. If you have questions about the EOPT's implications for your specific situation or require assistance with compliance, we highly recommend consulting a qualified tax professional like the experienced tax experts at BDO CMC.