By: Garry S. Pagaspas, CPA. December 14, 2020
In dealing with the COVID-19 Pandemic, the Philippine legislature passed into law Republic Act No. 11469, otherwise known as “Bayanihan To Heal As One Act” and along with other matters contained therein are tax rules and implications in related dealings. Below are 10 new notable tax rules in the Philippines under COVID-19 Pandemic based on recent issuances (e.g. Revenue Regulations (RR), Revenue Memorandum Circulars (RMC), and Revenue Memorandum Orders (RMO) of the Bureau of Internal Revenue (BIR):
1. Filing extensions under various BIR issuances (RR Nos. 7/8/10/11/12-2020)
With the imposition of quarantine since mid-March 2020, work in private and government offices were suspended and mobility was limited prompting the BIR to come up with issuances extending filing deadlines during quarantine. These extensions during the quarantine period cover periodic tax returns and reports filings in Philippines – monthly and quarterly; filing of time-bound applications/ processes – tax refunds, registrations, etc.; and legal processes – filing of reply/protest to assessment notices of BIR, so take note of these BIR issuances for future reference on issues related to late filing and/or failure to file allegations. Notably, while the rest of extensions have been regularized by now, Tax Amnesty on Delinquency under Republic Act No. 11213 in Philippines as implemented by RR No. 4-2019 has been further extended until December 31, 2020 under RMC No. 61-2020.
2. Import Exemptions on equipments, supplies, etc. for COVID-19 under RR 6-2020 dated Mar. 27,2020 and RR 28-2020
Relative to the Philippine government’s response to COVID-19, the importation of critical or needed healthcare equipment or supplies intended to combat COVID-19 such as personal protective equipment (PPE); laboratory/ medical/ surgical equipments/ devices/ supplies/ tools/ consumables; testing kits; other supplies or equipment as may be determined by the Department of Health (DOH); and materials needed to make health equipment and supplies deemed as critical or needed to combat COVID-19 in Philippines was accorded tax exemption from value added tax (VAT), excise tax, and other fees.
Importation of these equipments, supplies, etc. are relatively exempted from the issuance of Authority to Release Imported Goods (ATRIG) under RMO 35-2002 subject to BIR post investigation/ audit. Donations of these imported articles to the government was likewise exempted from donor’s tax and subjected to ordinary rules on deductibility of charitable contributions.
Relatively, RR 28-2020 also provides for exemption from 12% VAT, excise tax, and other fees along with ATRIG, importation from June 25, 2020 to December 19, 2020 of certain goods (e.g. PPE), equipments duly approved (e.g. DENR, DOH, etc.) for waste management, and inputs/ raw materials/ equipment necessary for the manufacture of essential goods related to containment or mitigation of COVID-19.
3. IPO tax exemptions under RR 23-2020 dated Sept. 14, 2020
Normally, initial public offering (IPO) of shares of stock of closely held corporations in Philippines are subject to percentage tax under Section 127(B) of the Tax Code of 1997, as amended, at the rates ranging from 1% to 4% (Sec. 127(B), NORC, as amended) depending on volume of IPO shares to outstanding shares. Under RA 11469, Section 127(B) of the Tax Code of 1997, as amended, has been repealed so no IPO taxes will then be imposed.
4.DST exemptions on restructuring under RR 24-2020 dated Sept. 14, 2020
With the unfortunate adverse economic impact of COVID-19 where some borrowers are losing capacity to pay, loans/ credits/ amortization/ lease payment dates are allowed to be restructured and/ or extended. These are normally subject to Documentary Stamp Tax (DST) in Philippines under the Tax Code, as amended, but was exempted by RA 11469 for those made on/or before December 31, 2020, except interbank loan and bank borrowings.
5. NOLCO deduction to 5 years from usual 3 years under RR 25-2020 dated Sept. 30, 2020
Again, with the severe adverse economic impact of COVID-19, operational loss could be imperative for some businesses. Under the regular rules (Section 34(H)/ RR No. 14 – 2001), taxpayer’s operational loss is allowed recoupment within the next 3 consecutive years following the year of loss as allowable deduction from gross income. Under RA 11469, the three (3) year period for 2020 and 2021 taxable years are extended and made 5 consecutive years or until 2025 for 2020 losses, and 2026 for 2021 losses, subject to NOLCO reporting requirements in the income tax return and financial statements.
6. Donor’s Tax exemption on donations under RR 9-2020 dated Apr. 6, 2020, and to schools under RR 26-2020
Under the Tax Code of 1997, as amended, donors are taxed at 15% of taxable net gift and donations to accredited done-institutions and government for NEDA priority projects are fully deductible from gross income for income of the donor tax purposes while other donations are under limited deductibility – 5%/10% of taxable net income before donations. Relative to RA 11469, certain donations (cash, critical and needed healthcare equipments/ supplies, relief goods, and use of property) made during the state of national emergency geared towards the sole and exclusive purpose of combatting COVID-19 in Philippines to government (even if not under NEDA priority project) and to accredited done-institutions are exempted from donor’s tax and fully deductible from gross income for income tax purposes, subject to proper documentation, as indicated in RR 9-2020. Donation of items deemed sale for value-added tax (VAT) purposes are likewise exempted from 12% VAT. These however are subject to BIR’s power to examine documentation to determine qualification.
With the resumption of classes in schools under online/ alternative learning system, donations (local or foreign – importation) of personal computers, laptops, tablets, or similar equipment (i.e. mobile phone, printers, etc.) for use in teaching and learning in public schools from September 15, 2020 up to December 19, 2020 are exempted from donor’s tax, fully deductible for income tax purposes, and exempted from 12% VAT under deemed sale rules, subject to proper documentation as indicated in RR 26-2020.
7. Income tax exemptions on Covid-19 hazard/ allowance/ retirement under RR 29-2020 dated Oct. 15, 2020
While compensation for employer-employee relationship is taxable at 20-35% under the Tax Code, as amended, certain income payments relative to employment are exempted under COVID-19 pandemic: retirement benefits from June 5, 2020 to December 31, 2020, the amount of which is in accordance with the retirement plan duly-registered with BIR; COVID-19 special risk allowance to health workers; actual hazard duty pay to human resource for health personnel; and, compensation given or to be given from February 1, 2020 and during state of national emergency as declared by the President, to health workers who contacted COVID-19 in line of duty or dies fighting COVID-19 (P15,000 for mild/ moderate cases, P100,000 in case of severe or critical sickness, or P1M in case of death). Such income payments are required to be included in the Alphabetical List of Employees/ Payees to be filed by employers along with a one-time list of recipients not later than January 15, 2021.
8. Registration of online sellers under RMC 60-2020 dated June 1, 2020
During lockdowns under COVID-19, online selling had surged prompting the BIR to give due notice to all persons doing business and earning online in any manner or form, specially those who are into digital transactions through the use of any electronic platforms and media, and other digital means to ensure that their business is registered and tax compliant in accordance with the rules – issuance of receipts/invoices, keeping of books of accounts, withholding of applicable taxes, and paying correct taxes. Registration as set until July 31, 2020, extended until August 31, 2020, then finally extended until September 30, 2020. Sales made prior to registration voluntarily declared within the registration period are without penalty for late payment, and penalties apply beyond September 30, 2020.
Notably, COVID-19 pandemic has brought new tax rules that taxpayers should be aware of for their BIR tax compliance in Philippines. Some of these rules are time bound (co-terminus with the effectivity of RA 11949) while some extends beyond the expiration of the law such as the NOLCO. For specific details of the application, full reading of the cited BIR issuances in the Philippines is highly suggested to avoid missing out the nitty gritty of the new tax rules under COVID-19 pandemic in Philippines.
Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for almost two (2) decades now helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.
Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.
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