[Ask the Tax Whiz] Ease of paying taxes law revenue regulations

Under the EOPT Law, Sales Commercial Invoices or Official Receipts are now both referred to simply as ‘INVOICE.’ Can you explain how this change might impact invoicing and billing practices for businesses?

The EOPT law now recognizes sales using the accrual basis for both goods and services, including transactions with the government and its agencies. So, all mentions of terms like “gross selling price” or “gross receipts” are now called “GROSS SALES,” no matter if it is goods or services being sold.

Previously, there were distinctions between sales of goods and services, with separate documents like sales/commercial invoices and official receipts. However, with the shift to accrual basis for both goods and services, a single document is mandated for simplicity. This implies that all mentions of sales/commercial invoices or official receipts will now be consolidated and referred to simply as “INVOICE.”

Additionally, billings for sales of services on account, which were previously based on receipts or payments, will now be referred to as “BILLING” or “BILLED.” This change aims to streamline the invoicing process and ensure consistency in reporting under the new tax framework.

I have uncollected receivables for my business. What will be the treatment for these receivables since the EOPT law has shifted the recognition of sales to accrual basis?

EOPT law has a feature of allowing taxpayers who have uncollected receivables to deduct the VAT from their next quarter’s VAT payment but only if they already paid the VAT on original sales and the VAT component on uncollected receivables has not been collected as allowable deduction. This is applicable for transactions transpired upon the effectivity of the regulation or April 27, 2024. 

To qualify for VAT credit, the following requisites must be present:

1. The sale must have happened after the regulations were in place.
2. It must have been on credit.
3. There must be a written agreement on the payment period.
4. The VAT must be shown separately on the invoice.
5. The sale must be clearly listed in the sales report.
6. The seller must have reported the VAT on their tax return within the required time.
7. The agreed-upon payment period must have passed.
8. The VAT on the uncollected receivable had not been deducted as a bad debt expense.
9. If the seller eventually gets paid for these outstanding sales, they’ll need to add the corresponding VAT to their VAT payment for that period. These rules don’t change the conditions for deducting bad debt expenses in income tax returns.

In case of recovery of uncollected receivables, the output VAT pertaining thereto shall be added to the output VAT of taxpayer during the period of recovery.

For transactions prior to the effectivity, the output VAT component is to be declared upon collection of receivables and shall be supported by invoice.

How does the risk-based VAT refund under the EOPT Act work, and what are the set of criteria introduced by the newly issued Revenue Regulations 5-2024?

The Risk-Based Classification of VAT Refund Claims is classified into low-, medium-, and high-risk claims. This only applies to tax credit/refund claims filed starting July 1, 2024 onwards. The risk levels and their corresponding verification processes for tax refund claims are as follows:

The level of risk is determined by:

• the amount of VAT refund claim
• frequency of filing VAT refund claims
• tax compliance history
• other risk factors that may be identified

The following claims shall be classified as high risk:

1. Claims by first-time claimants
2. Claim following a fully denied claim
3. Claims for any unused input tax filed by a VAT-registered person whose registration has been canceled (retirement from/closure of business, due to changes in or end of status)

In essence, the new risk-based classification system under the EOPT law aims to enhance efficiency and transparency in VAT refund processing.

I still have some official receipts left unused for my business. However, under the EOPT Law, those receipts are not valid anymore. What should I do with the unused receipts?

Under the EOPT law, official receipts are no longer valid for VAT purposes. However, if you still have unused ORs for your business, there are options available:

• Supplementary Use: You can continue to use the unused ORs as supplementary documents until they are fully consumed. But, it’s important to stamp them with the phrase, “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX.”
• Conversion to Invoices: Alternatively, you can convert the ORs to invoices by striking through the word “OR” and stamping “Invoice” on them to describe the transaction. This can be considered as the primary invoice and valid for claim of input tax until December 31, 2024. Take note also that the approval of BIR is not required.
• Reporting Unused ORs: If you plan to use the unused ORs as invoices, you need to submit an inventory of these unused ORs indicating the number of booklets and corresponding serial numbers in duplicate original copies within 30 days of the regulations’ effectivity to the BIR.

2. If I registered my business in 2023, what type of taxpayer would I be considered under the EOPT law? What else should I know about the new classification? 

If you registered your business in 2023, you would initially be classified as a Micro Taxpayer under the EOPT law. This classification is based on your gross sales for the taxable year 2022. The table for initial classification of taxpayers based on the registered year is provided:

The initial classification will remain unless reclassified later if their sales reach a specific amount in accordance with the threshold values. The Bureau of Internal Revenue (BIR) will notify taxpayers of their classification or any changes to it according to procedures outlined in separate revenue issuances. The gross sales thresholds for different taxpayer classifications are as follows:

It is important to note that VAT-registered taxpayers are categorized as “Small” because they meet the P3-million threshold requirement.  – Rappler.com

CONSULT ACG to understand and learn more about the impact of the newly enacted Ease of Paying Taxes (EOPT) Law to your businesses.