(First of a Series)
Note: House Bill No. 5636 discussed in this article refers to the version approved on 3rd and final reading by the House of Representatives on 31 May 2017. The proposal has yet to be passed by the Senate. This article does not take into account the provisions of the Senate version of the Bill, where deliberations are still ongoing.
House Bill (HB) 5636 is the first of several tax reform packages aimed at rationalizing the Philippine internal revenue tax system. Much of the debate and discussions about the bill revolve around how the bill shifts taxation from income to consumption, with the goal of alleviating the plight of lower-income taxpayers and shifting some of the burden to higher earners. The bill proposes to lower personal income tax for salaried employees and simplify taxation for small entrepreneurs, but at the same time rationalizes VAT exemptions, and increasing (or introducing) excise taxes on petroleum products, automobiles, and sugar-sweetened beverages.
Perhaps one of the less discussed portions of HB 5636 is the set of amendments on electronic invoicing (amendment to Section 237) and real-time sales reporting (insertion of Section 237-A). The HB also proposes to increase civil and criminal penalties for non-compliance. Thus, beyond the increase in certain taxes, the HB also intends to improve tax collection by plugging leaks from taxpayers’ non-compliance and inaccurate revenue reporting.
Section 237 (as proposed to be amended) will explicitly require taxpayers to issue electronic invoices/receipts (for sales of at least P25.00). The amended section further requires that each e-invoice/receipt be issued at the point of sale, either electronically or by tendering a printed copy thereof. There will also be a new requirement for taxpayers to transmit the electronic invoice/receipt directly to the Bureau of Internal Revenue (BIR) at the time and date of each sales transaction.
Prior to HB 5636, e-invoicing had been allowed, but not mandated, and subject to approval by the BIR. E-invoicing is usually a module of the complete Computerized Accounting System (CAS), for which a BIR permit must be secured prior to its implementation. The BIR has not laid down the rules governing the storage of digitally formatted invoices/receipts, apart from the current records retention rules allowing the scanning and electronic storage of hard copies of documents after five years. Current BIR rules are also silent on whether the invoice issued by an accounting system must actually be printed. In practice, however, these would typically be printed, with a hard copy thereof retained to avoid questions from the BIR and as proof of transactions in case of a tax audit.
Section 237-A, on the other hand, is a new section, which will make it mandatory for taxpayers to link their Cash Register Machines (CRMs) or Point of Sale (POS) machines to the BIR server, and electronically report their sales data through these devices. The HB — should it pass into law — mandates the BIR to establish the said electronic sales reporting system within three years from the effectivity of the law.
In relation to the new requirements for e-invoicing, real-time transmission thereof to the BIR, and electronic sales reporting, the HB also proposes to increase current penalties for non-compliance and introduce new penal provisions as follows:
• For failure to issue invoices/receipts — which now include electronic invoices and receipts — the administrative fine and criminal penalty are increased to up to P10 million, and six to 10 years imprisonment. The current maximum penalty is P50,000 and imprisonment of up to four years.
• For failure to transmit electronic sales data as required under Section 237 — A daily fine of a percentage of annual gross sales of the second year preceding the current taxable year.
• For selling, installing, using, possessing, of sales suppression devices — Maximum penalties of P10 million and four-year imprisonment (Section 264-B, HB 5636)
The last comprehensive tax reform program was implemented in 1998 with Republic Act 8424. While there have been several incremental changes and amendments since, HB 5636 and the tax reform packages will, taken together, be the first major overhaul of the Philippine tax system in nearly 20 years. The intent of HB 5636 seems promising — but there is still much debate on whether these measures will indeed succeed in being pro-poor, while simultaneously increasing tax collection.
Nonetheless, it will be the first time that e-invoicing and electronic sales reporting will be codified into law — which we believe points our tax system in the right direction. It will likely force the BIR to step up in the midst of the digital revolution. However, digitalization — by itself — is a different ballgame altogether, and even private entities are struggling to keep up with a rapidly digitalizing world.
While the BIR will have three years to implement the e-invoicing and e-sales reporting system, several implementation challenges are seen this early. Taxpayers are well advised to start preparing to adopt to the new electronic sales invoicing and reporting requirements in the face of the stiff penalties proposed for non-compliance.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Lee Celso R. Vivas is a Tax Partner of SGV & Co.