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RENE BAŅEZ’S BASKET OF GOODIES

The Bureau of Internal Revenue’s anniversary gift to the people last August 1, 2001 was a basket of fruits, sweet for some and sour for others. Consisting of four revenue regulations that will take effect fifteen (15) days after publication in a newspaper of general circulation, the new administrative measures drop a useless reporting requirement on non-resident citizens (Rev. Regs. No. 5-2001); institute changes in the withholding tax system, designed to expand the withholding tax base, raise some rates and lowers others, and accelerates the collection of many (Rev. Reg. No. 6-2001), open the door for the compromise settlement of pending cases (Rev. Reg. No. 7-2001); and invite taxpayers to avail themselves of the VAP, a voluntary assessment program that promises the taxpayer the privilege of last priority status in audit and investigation.

Rev. Reg, No. 5-2001 righted what had long been a nuisance. It did away with the requirement that imposed on Filipinos who are not residing in the Philippines the obligation to file income tax returns covering their income from abroad despite provisions in the National Internal Revenue Code of 1997 exempting such income from tax. Dispensing with reporting when no tax is due should be extended to other instances. Those so-called information returns do no more than add scrap paper at the Bureau of Internal Revenue.

Mixed reception will surely greet Rev. Reg. No. 6-2001. Subcontractors from service contractors engaged in petroleum operations are now included in the list of taxpayers subject to final tax since they are taxed at 8 percent on gross income from service contracts and that 8 percent is in lieu of any and all taxes, national and local. Non-resident cinematographic film owners, lessors and distributors, likewise, are subject to a final tax, for them the rate is 25 percent.

Filipinos holding managerial or technical positions in regional or area headquarters and regional operating headquarters of multinational companies, in off-shore banking units and petroleum service contractors and subcontractors will now enjoy the preferential treatment granted by the tax code to aliens. This privilege of being treated like a foreigner was granted to Filipinos by the National Internal Revenue Code of 1997. However, in an early ruling, addressed to me in fact, the Bureau restricted its enjoyment to those Filipinos working in companies where there is also a foreigner holding a similar post. This narrow-minded interpretation is now abandoned. Filipinos will enjoy the benefit of being taxed at the low rate of 15 percent on their gross income regardless of whether or not there is an alien executive occupying the same position in the company. By way of further bonus, these Filipinos, in case they feel the 15 percent tax on gross is disadvantageous to them, may instead opt to be taxed on their next income.

Section 3 of Rev. Reg. No. 6-2001 revises the creditable withholding tax rates. Of ten classes of taxpayers affected, eight will likely scream and two will rejoice. The lossers are professional entertainers, professional athletes, directors of movies and similar productions, recipients of talent fees, individual professionals such as lawyers and doctors, certain contractors, and some brokers and agents. The creditable withholding tax rates on their income have been doubled, from 10 percent to 20 percent for the first five, from 5 percent to 10 percent for the sixth and eighth, and 1 percent to 2 percent for the seventh. The winners are land developers and others who sell real estate as a business, their withholding bite was reduced from 7.5 percent to 5 percent.

Credit card companies have something to scratch their heads about. Under the previous regulations, tax they withhold from merchants was one-half percent (12 percent) on the gross amounts paid. Now, they must withhold a full one-percent on the one-half of the amount paid to the merchants. I myself scratched my head at that one until Commissioner Rene Baņez points out discretely that the old regulations were in error since the withholding rate was less than one percent. Contrary to Section 57(B) of the National Internal Revenue Code of 1997. To comply, the BIR increased the rate to 1 percent but reduced the base by 50 percent.

The final feature of Rev. Reg. No. 6-2001 is the acceleration of the payment of final and creditable taxes by the withholding agents to the Bureau of Internal Revenue. The float enjoyed by the withholding agent, which previously resulted in free use of government money, particularly for large taxpayers was reduced to about half the time.

The last two regulations are administrative, intended both to increase tax collection on previous years’ tax take as well as rid the bureau of an increasing backlog in tax cases. Revenue Regulations No. 7-2001 specifies in detail the method of entering into a compromise settlement of your internal revenue tax liabilities while Revenue Regulations No. 8-2001 institutes the Arroyo administration’s version of an administrative tax amnesty. Both measures deserve serious cost-benefit study by the taxpayer. They both contain liberal terms and, barring exceptional circumstances, should be acceptable to most taxpayers both for the peace of mind they offer as well as the real reduction of their financial obligation which could result from overly aggressive, if not dubious, positions they may have taken in previous years.

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