BIR loses P197-M tax collection case vs a mining company

BIR has lost its P197-million tax collection case against Atlas Consolidated Mining and Development Corporation for failing to include the company itself in the filing of criminal complaint against its former president.

In a 17-page resolution, the court en banc affirmed the decision of one of its division that the company should have also been included in the tax collection case for the imposition of fines. The CTA said a corporation or juridical entity, citing a verdict of the Supreme Court on similar case, should also be included in the criminal complaint though it cannot be arrested and penalized with imprisonment.

It said the corporation may be charged and prosecuted for a crime of non-payment of taxes which penalty is a fine.

It added the non-inclusion of the mining firm violated its right to due process of answering the charges.

“It is therefore indispensable to implead the corporation as a party in a criminal case for violation of the provision of the Tax Code for the government to enforce collection of the tax against such entity by way of criminal action pursuant to Section 205 of the Tax Code,” it said.

Likewise, the court noted that the BIR can no longer collect the tax debts because the five-year prescriptive period had elapsed from the filing of the tax return.

Records showed that the Masbate revenue district office issued the assessment notice on March 24, 2000 to expire after May 24, 2005 for the payment of deficiency excise tax incurred in 1991, 1992 and 1993.

The court also said the issuance by the revenue district office of the seizure warrant on August 19,2010 was also invalid  as it was way beyond the prescriptive period for the collection of the deficiency tax.

The resolution issued last week was penned by Justice Esperanza Fabon-Victorino and concurred by the other tax justices.

Who are the Top 10 individual Income Tax payers in the Philippines?

Get to know the top 10 individual tax payers in the Philippines.This data is based on 2014 tax filings.

Note: This data is based on 2014 tax filings. This is based on income taxes and other withholding taxes under the name of these individuals. Some known business tycoons may not be on the list because their business interests are in the form of corporate stocks/shares and undeclared dividends which does not form part of taxable income.

Rank	Taxpayer Name	Regular Income Taxes Paid
1	Pacquiao, Emmanuel Dapidran	163,841,863.00
2	Alcantara, Juanito Pornuevo	99,612,000.00
3	Mendoza, Estelito P	73,185,375.00
4	Chico, Reynaldo Jr Benoza	67,340,888.00
5	Tan, Andrew Lim	67,184,002.00
6	Tan, Lorenzo Villanueva	60,894,276.00
7	Alvarez, Jose Chavez	55,627,417.00
8	Azcona, Vivian Que	51,617,174.69
9	Reyes, Oscar Sison	51,440,314.00
10	Ayllon, Vicente Rafael Munoz	50,088,841.00

Vicente Ayllon is the CEO of Insular General Insurance.

Jose Alvarez is from Palawan who earned his fortune in logging and is now in car dealership business (BMW Philippines, Columbia Motors etc.)

Vivian Azcona is the President of of Mercury Drug. She has B.S. Pharmacy degree from University of Santo Thomas.

Oscar Reyes is the President and CEO of Meralco. He earned his MBA from Ateneo Graduate School and completed Management Development program from Harvard Business School.

How should UBER drivers comply with BIR?

Short answer: UBER drivers should, unfortunately, go through the same tax requirements under the tax code - i.e. Register, File, Pay.

Kim Henares said the BIR might soon come out with a regulation covering drivers of Uber vehicles and other TNCs, “if needed.” The feisty BIR chief reminded Uber and TNCs that all business enterprises have tax dues that must be paid correctly.

“Like any business, they are covered by the laws of taxation of entities engaged in business—from registration to issuance of receipts, to filing and payment of taxes,” she pointed out. “They are engaged in the provision of services and are covered by all the provisions of the Tax Code for business engaged in the provision of services,” Henares added.

Ferrari owner sued by BIR for tax evasion

BIR runs after owner of a luxury Italian Ferrari for alleged tax evasions in 2013 and 2014.

The bureau sued Rex Pepito Cortez, a resident of Sto. Domingo, Albay, for tax evasion of up to Php16.88 million for not paying taxes related to his purchase and disposal of a Ferrari. 

The case against Cortez stemmed from “information provided by a confidential informant that Cortez owned a Ferrari worth millions of pesos,” the BIR said. Cortez bought a brand-new 2013 model Ferrari/FF/Coupe on Dec. 4, 2013 worth P15.41 million. He subsequently sold the same car on March 24 the following year for P33 million.

According to the BIR, Cortez is not a registered business taxpayer in Legazpi City and has no available records of any income and value added taxes filed for taxable years 2007 to 2014.

“Despite the acquisition of said luxury vehicle in 2013 and revenue received from the sale of the said car, Cortezdid not file any income tax return for taxable years 2013 and 2014,” the BIR said. His tax liability amounted to Php8.38 million and Php8.5 million in 2014 respectively.

BIR Income Tax Allowable Deductions - Optional Standard Deductions

Optional Standard Deduction is an automatic 40% deduction from your Income. By selecting this option instead of Itemized Deduction, a taxpayer is no longer required to keep supporting evidence and is relieved from book keeping of expenses.

Under Itemized Deduction you can only deduct expenses that are related to your business and are properly supported.

TIP: Optional Standard Deduction should be used by taxpayers with total expenses that is less than or equal to 40% of Gross Income. 

BIR Income Tax Allowable Deductions - Personal Exemptions

All individual tax payers are allowed a personal exemption of Php50,000. In addition, individual tax payers are allowed additional exemption of Php25,000 for each qualified dependent child (QDC), provided that the total number of dependents shall not exceed four (4) dependents. The additional exemptions for QDC shall be claimed by ONLY ONE of the spouses in the case of married individuals.

Example: A freelancer has Php200,000 income and Php40,000 freelancing related expenses for the year and is single. Tax calculation would be as follows:

Total Freelance Fees = Php200,000

Less: Deductions

Operating Expenses = Php40,000

Personal Exemption (single with no dependent) = Php50,000

Net Taxable Income (Php200k - 40k - 50k) = Php110,000

Qualified dependent child means a legitimate, illegitimate or LEGALLY ADOPTED CHILD chiefly dependent upon and living with the taxpayer if such dependent is not more than 21 years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect. (RR 10-2010).

To claim additional exemption for qualified dependent child you need to file BIR Form 2305.

TIPS:

1. You CANNOT claim additional exemptions for your dependent parents, minor siblings or relatives (unless you have legally adopted them).

2. You CAN claim dependents (children) who are incapable of self-support due to mental or physical defect REGARDLESS OF AGE (even more than 21 years old).  Medical certificate maybe required by BIR when you file Form 2305.

BIR Income Tax - Allowable Deductions

Your income tax payable is simply calculated as: Total Taxable Income less Allowable Deductions. 

Determining your Taxable Income is fairly straightforward for most businesses/ professions.  Allowable Deductions is a bit more complicated. Below are basic guidelines in determining what you can deduct against your taxable income.

Allowable Deductions

Individual taxpayers have the choice to apply Optional Standard Deduction OR Itemized Deductions against Gross Income to arrive at taxable income.

Optional Standard Deduction (OSD) – There shall be allowed as deduction a maximum of 40% of gross income. A taxpayer who opts to avail of this deduction need not submit the Account Information Form /Financial Statements and avoids the hassle of keeping receipts and documents to support expenses (as required under Itemized Deductions).

OR

Itemized Deduction –All ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are attributable to the development, management, operation and/or conduct of the trade, business or exercise of profession.

The following are the itemized deductions:

1.       Salaries, Wages and Other Employee’s Benefits, Fringe Benefits, SSS, GSIS, Medicare, HDMF and other Contributions
2.       Commission, Outside Services
3.       Advertising, Rental, Insurance, Royalties
4.       Repairs and Maintenance
5.       Representation and Entertainment- limitation: 1/2 % -- seller of goods (based on net sales) 1% -- seller of service (based on net revenue)
6.       Transportation and Travel –here and abroad
7.       Fuel and Oil, Communication, Light, Power  and Water,  Supplies
8.       Interest -paid or incurred during the taxable year of indebtedness (with limit)
9.       Taxes and Licenses
10.   Losses-actually sustained during the taxable year & not compensated for by insurance
11.   Bad Debts - Actually ascertained to be worthless & charged off within the taxable year
12.   Depreciation, Amortization and Intangibles, Depletion
13.   Charitable Contributions (limit: 10% of Net Income before Contributions)
14.   Research and Development
15.   Amortization of Pension Contribution
16.   Professional Fees, Insurance Expenses
17.   Miscellaneous Expenses

Sample documents/Evidence sufficient to support deductibility of expenses:

a.       Official Receipts (OR), Cash/Sales Invoice
b.      Payroll (for employees salaries)
c.       Vouchers
d.      Bank Statements
e.      Debit/Credit Memo

BIR Tax Obligations of Self-Employed Individuals and Professional Practitioners

 Note: Your tax obligations are listed in your Certificate of Registration lists your tax obligations i.e. the tax types that you need to comply.

So, in general every tax payer needs to:

REGISTER WITH BIR -- FILE TAX RETURN -- PAY TAXES.

The following are the minimum BIR taxes applicable to self-employed individuals and professional practitioners:

1) Income Tax

2) Percentage Tax OR VAT – Note: You should register as VAT only if gross receipts/sales exceeds Php1,919,000

3) Expanded Withholding taxes – You need to serve as tax withholding agent for payments to some vendors (e.g. rental expense)

4) Withholding taxes on compensation (Applicable only if you have employees) 

5) Annual Registration Fee

How to register your Business or Professional Practice with the Bureau of Internal Revenue (BIR)

(Note: You should register at the BIR Revenue District Office (RDO) covering your location of business. Each BIR RDO may allow different sequence of steps during registration.)

STEP 1: Secure your Tax Identification Number

a.      Go to the BIR Revenue District Office that has jurisdiction over your business address. List of RDO’s is available from the BIR online directory. You can also secure TIN in advance through the BIR e-registration website. This may help expedite the process.

b.      Bring your birth certificate or any valid identification AND any documents that shows that you have an existing business e.g. Mayor’s permit, DTI certificate. Some RDOs require lease contract if you’re leasing a space for your business.

STEP 2: Fill-in Application for Registration.

Fill-in BIR Form 1901 Application for Registration for Self-Employed and Mixed Income Individuals, Estates/Trusts and submit to BIR RDO where your business is located. You can download the form online in BIR website or get a manual copy in your BIR RDO.

Under Tax Types (Line 22 of Form1901), the following are commonly applicable to self employed individuals and small and medium sized enterprises:

i.      Income Tax
ii.      VAT OR Percentage Tax. VAT is applicable in general if your prior year actual or current year estimated annual receipts/sales/revenue exceeds Php1,919,500, otherwise you should select Percentage Tax only.
iii.      Withholding Tax – Expanded. You are required to withhold taxes on some of your suppliers.
iv.      Withholding Tax – Compensation. Applicable only if you have employees.
v.      Registration Fees. All registered tax payers are required to pay annual Registration Fee.

TIP: BIR officers can provide assistance on ho to determine applicable taxes.

STEP 3: Pay Registration fee at the authorized agent bank. (Note: Payments should not be made to any BIR personnel).

a.      Fill-in Form 0605 Payment Form and pay registration fee of Php500 at the authorized agent bank of the RDO (normally there’s one within the BIR vicinity.)

b.      Fill-in Form 2000 Documentary Stamp Tax Declaration/ Return and pay applicable documentary stamp, if applicable.

STEP 4: Submit Documents (Form 1901, Form 0605)) to your BIR RDO

STEP 5: Attend the required tax payer briefing before the release of the BIR Form 2303 Certificate of Registration (COR).

STEP 6: Register books of accounts and print official receipts/invoices.

a.      Buy full set of books (at least 4 – Journal, Ledger, Cash Disbursement, Cash Receipts).
b.      Fill-in Form 1905 Application for Registration Information Update
c.       Look for authorized receipts/invoice printers and ask for job order. Usually they have authorized printers within the BIR (asked around). TIP: Official Receipt if you are providing services, Sales Invoice if you are selling goods.
d.      Fill-in Form 1906 Authority To Print (ATP) and submit to registration section.
e.      The RDO will stamp your books, give you ATP to get your receipts/invoices printed.


STEP 7: (Every year) Pay Annual BIR Registration (Form 0605) in any authorized bank agent in your RDO.

CHECKLIST: After the BIR Registration process, you should have the following documents as proof or your registration:

1.      Certificate of Registration (Form 2303)
2.      Ask for Receipt notice card
3.      Books of Accounts with BIR stamp
4.      Official Receipt/ Invoices
5.      Copy of Form 0605

TIP: The following should be displayed in your place of business: Certificate of Registration (Form 2303), Ask For Receipt notice, and Form 0605 Payment Form for annual registration.

BIR Online Filing

QUESTION: Are all taxpayers now required to file tax returns online?

ANSWER: No, only the following group/type of tax payers are mandated to file using BIR Online Filing system.

1. Accredited Tax Agents/Practitioners and all its client-taxpayers;
2. Accredited Printers of Principal and Supplementary Receipts/Invoices;
3. One-Time Transaction (ONETT) taxpayers;
4. Those who shall file a “No Payment” Return;
5. Government-Owned or -Controlled Corporations (GOCCs);
6. Local Government Units (LGUs), except barangays; and
7. Cooperatives registered with National Electrification Administration (NEA) and Local Water Utilities
Administration (LWUA)

Note that other types of tax payers can also file one - but not mandatory.

BIR Taxes for Small Business

The following are the most common BIR taxes applicable to small business or self-employed individuals. To ensure that you are aware of the all your BIR tax obligations, please check your Certificate of Registration (Form 2303). 

1. REGISTRATION FEE – This is annual fee of Php500 due every Jan. 31 of the year.

2. INCOME TAX – Ranging from 5% to 32% depending on your level of taxable income. Due quarterly (3) and annually.

3. BUSINESS TAXES (either VAT or Percentage Tax)
a. VAT if your gross income is more than P1.9M for the year – 12% of your gross receipts less VAT on purchases/expenses (you only pay the net amount)
b. PERCENTAGE TAX if you’re not subject to VAT – 3% of gross receipts

4. WITHHOLDING TAXES – taxes you withhold from your payments to suppliers and needs to be remitted to BIR. In short, BIR wants you to collect tax from your supplier and give it to BIR. This is not your tax but it is an obligation to collect tax. Common example is rental. You only pay your landlord net of 5% withholding tax and you are required to remit this 5% to BIR.