Tax Development

A New Disclosure (Taxes Unveiled)

 

The past year opened our country to changes and hopes. With the new administration, all are optimistic for a new beginning, a new shift, a better Philippines. Priorities were set, projects were planned and promises were made. But in order to achieve those, the government needs financial support and we all know that taxes are the basic source of our country’s income.

Nonetheless, the new administration affirmed that the imposition of new taxes will be their last priority. However, strict compliance of the taxpayers with the payment of the present taxes will be ensured. This has put pressure on the Bureau of Internal Revenue (BIR) to strengthen their system on the effective tax administration and enforcement. As a measure, the BIR has regularly issued regulations and rulings for the taxpayers’ observance and guidance.

Last November 25, 2010, the BIR issued Revenue Regulations (RR) No. 15-2010 to provide for amendments to RR No. 21-2002 prescribing the manner of compliance with any documentary and/or procedural requirements in connection with the preparation and submission of financial statements accompanying the tax returns.

This regulation provided that in addition to the disclosures mandated under the Philippine Financial Reporting Standards, and such other standards and/or conventions adopted, the Notes to Financial Statements shall include information on taxes, duties and license fees paid or accrued during the taxable year, particularly the following:

1.       The amount of VAT output tax declared during the year and the account title and amounts/s upon which the same was based. If there are zero-rated sales/receipts and/or exempt sales/receipts, a statement to the effect and the legal basis therefor;

2.       The amount of VAT input taxes claimed broken down into:

a.        Beginning of the year;

b.       Current year’s domestic purchases/payments for:

                                                         i.            Goods for resale/manufacture or further processing

                                                        ii.            Goods other than for resale or manufacture

                                                      iii.            Capital goods subject to amortization

                                                       iv.            Capital goods not subject to amortization

                                                        v.            Services lodged under cost of goods sold

                                                       vi.            Services lodged under other accounts;

c.        Claims for tax credit/refund and other adjustments; and

d.       Balance at the end of the year.

3.       The landed cost of imports and the amount of customs duties and tariff fees paid or accrued thereon;

4.       The amount of excise tax/es, classified per major product category, i.e., tobacco products, alcohol products, automobiles, minerals, oil and petroleum, etc. paid on-

a.        Locally produced excisable items, and

b.       Imported excisable items.

5.       Documentary stamp tax (DST) on loan instruments, shares of stock and other transactions subject thereto;

6.       All other taxes, local and national, including real estate taxes, license and permit fees lodged under the Taxes and Licenses account both under the Cost of Sales and Operating Expense accounts;

7.       The amount of withholding taxes categorized into

                                   i.          Tax on compensation and benefits

                                  ii.          Creditable withholding tax/es

                                iii.          Final withholding tax/es

8.       Periods covered and amount/s of deficiency tax assessments, whether protested or not;

9.       Tax cases and amounts involved, under preliminary investigation, litigation and/or prosecution in courts or bodies outside the BIR.

This new regulation has drawn a number of questions from the taxpayers and external auditors. Is there a need to prepare a separate schedule for the disclosures on VAT and withholding taxes? Are all assessments, formal and informal, need to be disclosed?

This is a challenge for every taxpayer and their corresponding external auditors to ensure that all required disclosures are presented in the financial statements. However, at the end of the day, the BIR is still needed to provide clarifications on this regulation to avoid confusion and misinterpretation among taxpayers, external auditors and others concerned.

RR No. 15-2010 was published in Manila Bulletin on December 13, 2010 and took effect on December 28, 2010.