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A Simplified Guide to the Ease of Paying Taxes Act (EOPT) for Small Business Owners

The Ease of Paying Taxes Act (EOPT) is a welcome development as it highlights the government’s need to digitize its system and processes through the adoption of the BIR of a Digital Roadmap. It likewise addresses the need for simplified tax payment processes to benefit taxpayers and tax collection agencies. Lastly, it recognizes the undisputed value of the digitized world of electronic tax payment service providers such as TAXUMO in providing coherent and systematized easy-to-understand services to taxpayers and efficient tax collection services in aid to the government’s tax collection arm, the BIR.

Significant provisions of the EOPT are:

  1. Classification of Taxpayers

The EOPT now classifies taxpayers based on gross sales, into:

  • Micro – those who have less than P3M sales in a year
  • Small – those who have at least P3M up to less than P20M sales in a year
  • Medium – those who have at least P20M up to less than P1B sales a year
  • Large – those who have at least P1B sales a year

The classification is significant as the new law includes provisions that are only applicable to micro and small taxpayers:

  • Their Income Tax Returns shall be a maximum of 2 pages whether filed manually or electronically
  • Reduced rate of 10% for civil penalties
  • Reduced rate of 50% on the interest rate
  • Reduced rate of P500 as a penalty for failure to file information on returns
  1. Individuals not required to file Income Tax Returns (ITR)

Overseas Filipino workers (OFWs) whose income is solely derived from their income as overseas contract workers are no longer required to file their ITR.

  1. Where and when to file and pay taxes

Under previous laws, taxes are filed and paid within the jurisdiction where the business is registered. If taxes are filed and/or paid outside of the business’ place of registration, there is a 25% penalty.

Under the EOPT, taxes may be filed and paid anywhere and can be done through an ‘authorized tax software provider’ such as TAXUMO. The EOPT also has removed the penalty clause.

  1. BIR Registration and Annual Registration Fee

Under the EOPT, the P500 annual registration fee is no longer required. BIR is also now mandated to simplify business registration and tax compliance requirements for self-employed individuals and/or professionals.

  1. Withholding Tax

Deduction and withholding of tax arises at the time the income has become payable. Withholding tax also has been removed as a requirement to file for deductions on income tax.

  1. VAT

Under the EOPT, VAT is based on gross sales of goods or services and no longer based on gross receipts. Prior to EOPT, gross receipts are required to prove input VAT while under the new law, invoices are now sufficient to substantiate input VAT making the process easier for taxpayers.

Note that sales/lease of goods, properties, and/or services that are not more than P3M in value are now exempt from VAT.

It is important to remember that payment of VAT is via accrual which means that even if not yet collected, VAT must be declared and already paid.

  1. Sales/Commercial Invoices and Receipts

Information on the receipt/invoice is made simpler. Declaring the “business style” is no longer required.

Under the EOPT, sales/commercial invoice or receipts are required to be issued for transactions above P500 in value. If the individual transactions are less than P500, the taxpayer is still required to issue an invoice or receipt for the total and aggregate sale at the end of the day if the total sales is at least P500.

  1. Preservation of Books of Accounts and other Accounting Records

The EOPT has made it easier for taxpayers to keep their accounting records by reducing the period covered. Previously, taxpayers were mandated to keep their records for 10 years. Under the EOPT, the period has been reduced to 5 years from the date of the filing of the return.

The Implementing Rules and Regulation (IRR) of the EOPT is set to be issued in 90 days. It is also important to remember that under the EOPT, taxpayers have 6 months from the effectivity of the IRR to comply with EOPT provisions on VAT and other percentage taxes.

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