Presently, the legislature had passed some tax measures providing for some incentives that may negatively affect reaching collection targets along with some other updates tending to slow collections. I am referring to RA 9593-Tourism Act of 2009, RA 9442 – amendment to the Magna Carta for Disabled Persons, RA 9648 – DST Tax Exemption, reduction on amusement taxes to 10%, the MCIT case resolutions of PAL, transitional input tax issue of FBDC, and the MIAA real property tax case resolution this 2009. In short, the BIR is finding some measures in which it can raise collections as the target had been set to be attained despite all that. Moreso, that as we read on the papers, the senate says NO to tax measures imposing and creating new taxes which means NO helpline to BIR.

One of its (BIR) move is the expansion of the Top Ten Thousand Corporation (TTC) for mandatory withholding to Top Twenty Thousand Corporations. Wider coverage would mean a wider advance collection of income and more encouragement to payees of income payments to declare income and pay related taxes. Another notable introduction is the Top Five Thousand Individuals (TFI) for those individuals engaged in trade or business and those in the practice of profession meeting certain criteria set for the purpose. For those newly appointed TTC or TFI, these new regulations may not be simple to comply as they add some administrative duties. However, we cannot put the blame on BIR on this. Should they not comply, then, penalties are at stake. Other moves are on improved BIR assessments, and computerized matching so taxpayers are being surprised by some yearly assessments and left and right tax verification notices. In effect they are extracting for the taxpayer’s last drop of tax liabilities.

The idea of what can the BIR do to improve collection had been lingering on my mind and it is only on this post that I took the courage to formalize and share with the rest what I have in mind. In the meantime, what about if the BIR applies the same principle of withholding tax on GAMBLING, like on cockfighting winning bets? For some this is simply a past time or a hobby, but we must admit many lives on it. I do not participate on cockfighting but my understanding is the admin gets commission every time the bet wins. yes, the winning is a taxable income, but who knows if this income is being declared and tax paid. In the same manner, losses from gambling is a capital loss that is not deducted from income tax purposes. This may seem weird and maybe hard to implement at first not because of its complexities, but maybe because of some influential personalities who has the love of it that may simply use power to go against it. However, looking at it and considering the volume of money flowing in and out of the cockfighting industry every Sunday, special holidays and scheduled derby, I am quite confident that tax collections from this may mean something. If they could waste money on this past time, why not share a portion of this for taxes?

You may have something in mind that may also help the BIR improve collection. We would be pleased and honored to hear it from you. Simply drop a line below and we will try to submit our collective ideas to the BIR.

Along with this law, Department of Tourism as the implementing and regulating agency is bombarded with enough powers, strength, and capitalization for the effective furtherance of its purpose and implementation of various programs and policies. Certain government agencies and instrumentality were restructured and reorganized such as the Duty Free Philippines to Duty Free Philippines Tourism Corporation (DFPC), and Philippine Tourism Authority (PTA) converted to Tourism Infrastructure & Enterprise Zone Authority (TIEZA).

More importantly is the creation of the so-called Tourism Economic Zones (TEZ) somewhat similar to that of Philippine Economic Zones (PEZA under RA No. 7916), and Bases Conversion and Development Authority (BCDA under RA No. 7227) Ecozones. TEZ operators could either be a local government, itself, a private entity, or a joint venture of the two. Under this law, Tourism Enterprises within a TEZ registered under TIEZA shall be allowed certain fiscal and non-fiscal incentives under the criteria to be established by the implementing rule and regulations such as the following:

A. Fiscal Incentives:

a. Income tax holiday for 6 years, subject to extension for another six years under certain conditions;
b. 5% income tax based on gross income earned in lieu of all other national and local taxes, license fees, imposts and assessments, except real estate taxes;
c. Tax free importations of capital investments and equipment, transportation and spare parts;
d. Additional tax deductions on social responsibility expenditures not exceeding 50% of cost; and,
e. Such other incentives under certain conditions.

B. Non-fiscal incentives
a. Employment of foreign nationals;
b. Special investor’s resident’s visa;
c. Repatriation of Investments in foreign currency;
d. Remittance of foreign exchange;
e. Foreign loans and contracts

With the above incentives, along with the re-organization and restructuring, it is expected that more investors shall be coming in to establish a Tourism enterprise, or develop and upgrade their existing facilities to be entitled to the incentives. In the meantime, the corresponding Implementing Rules and Regulation of the said law is underway and expected to be released soon. The regulations will further state in details the requirements, conditions and procedures for the applicability of the incentives and privileges.

Other Updates:

a. BIR RMC No. 41-09 on 15% income tax of expats
b. RA No. 9640 Amusement tax reductions;
c. RA No. 9648 DST exemption on listed shares;
d. RA No. 9442 Magna Carta for Disabled Persons

1. general administration and planning
2. business planning and coordination
3. sourcing and procurement of raw materials and components
4. corporate finance advisory services
5. marketing control and sales promotion
6. training and personnel management
7. logistic services
8. research and development services and product development
9. technical support and maintenance
10. data processing and communication, and,
11. business development

Being a special entity allowed in the Philippines with certain incentives and preivileges, ROHQ’s business activities are subject to the following limitations:

a. Shall offer its services only to its affiliates, branches or subsidiaries, as declared in its registration with the Securities and Exchange Commission (SEC).

b. It shall not directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.

c. It cannot directly or indirectly engage in the sale and distribution of goods and services of its mother company, branches, affiliates, subsidiaries or any other company.

Capitalization requirements. The ROHQ is required to initially remit into the country within 30 days from receipt of the Certificate of Registration with SEC through BOI such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than US$200,000 or its equivalent in other currencies. This should be evidenced by a Certificate of Inward Remittance issued by the depository branch.

Taxation and Other incentives includes the following:

ROHQ

a. 10% income tax on taxable net income instead of the 30%/25% on income;

b. 12% value-added tax;

c. 15% branch profit remittance  tax;

d. Tax and duty free importation of training materials and equipment, and importation of motor vehicles; and

e. Exemption from all kinds of local taxes, fees, or charges.

Expatriates

a. Multiple entry visa to expats, their spouse and children under certain conditions;

b. Travel tax exemption of expats and their dependents upon certification of the BOI;

c. Tax and duty free importation of personal and household effects ;

d. 15% withholding tax on compensation of managerial and technical alien employees instead of the 25% or 5-32%. Apply also to Filipino citizens holding the same positions.

Licensing. In order to operate and ROHQ in the Philippines, it is required to secure a License with the securities and Exchange Commission (SEC). For the purpose, endorsement by the Board of Investments (BOI) shall be submitted to the SEC along with the other requirements. Likewise, registration with the BIR, and other government agencies are required for the ROHQ.

Related Posts:

a. What are registrable entities in the Philippines?

b. 15% imposable to expats, when applicable?

c. License of Philippine Brach, how secured?

d. How to register a Domestic Company in the Philippines?

Suggested Reading:

a. Republic Act No. 8756  amending Executive Order No. 226;

b. Revenue memorandum Circular No. 41-2009;

Taxes are the lifeblood of the government, without which, it cannot subsist. This dictates that taxes owing to the government shall come in due time and in exact amounts so as not to cause any untoward delay and interruption in its performance of its duties and responsibilities to the citizenry. Impliedly, excuses in the delay of payment, no matter how reasonable, may not defeat the need for the government to exist. Thus, to be fair to the BIR and the government, it maybe a good start to know the rationale on the imposition of these penalties– 25%/50% surcharge, 20% interest, and compromise penalties.

Surcharge is a one-time imposition upon failure to pay the tax due in full in due time. The rate 25%, in general, except if fraudulent in character where 50% is used. It is intended to hasten tax payments or to punish evasion or neglect of duty in respect thereof.

On the other hand, the imposition of 20% interest annually from the time a basic tax due is bound to be paid until such time that it becomes fully paid, is but a just compensation to the State for the delay in paying the tax and for the concomitant use by the taxpayer of funds that rightfully should be in the government’s hands. The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory for the time value of money in the government’s hands.

Finally, compromise penalty is imposed in lieu of prosecution in court. Instead of taxpayer being sued in court for the particular violation, the taxpayer and the BIR will simply agree upon the payment of compromise in order to do away with the time, effort and money that the litigation process may take.

Suggested readings:

a. Jamora vs. Meer, 74 Phil. 22
b. Castro vs. Collector of Internal Revenue, G.R. L-12174. Dec. 28, 1962
c. Aguinaldo VS. CIR, G.R. No. L-29790. February 25, 1982

Tax implication of real property disposition basically depends on its classification for tax purposes: ordinary asset or capital asset. Ordinary assets simply refers to those used in business, while capital assets refer to those not used in trade or business. As an example, a land used as a factory site, or warehouse site or office site is an ordinary asset, while, a land bought for anticipation of future increment of value and for which, the same is booked as an investment is a capital asset. Circumstances of the owner, e.g. engagement in trade or business, and actual usage of the real property are important factor for such classification. An owner may not be a businessman but the property may have been rented out making it an ordinary asset. On the other hand, an owner maybe a businessman but the property disposed is not used in trade or business, like its residence, and so it will be classified as a capital asset.

An ordinary asset is subject to the following rules upon its bona fide transfer for a consideration:

* 12% value-added tax (VAT)
* 1.5% documentary stamp tax (DST)
* 1.5 to 6% creditable withholding tax (CWT), depending on the gross selling price to be withheld by a buyer if the seller is engaged in trade or business
* 6% creditable withholding tax if the seller is not engaged in trade or business
* Local transfer tax with the LGU, and registration fees with the Registry of Deeds of approximately 1%
* 30% donor’s tax as an indirect gift if the valuable consideration is less than the fair market value of the property

A capital asses on the other side is subject to the following:

* 1.5% documentary stamp tax (DST)
* 6% capital gains tax (CGT) based on the gross selling price or fair market value of the property, whichever is higher
* Local transfer tax with the LGU, and registration fees with the Registry of Deeds of approximately 1%

Main difference of the two lies on the VAT and income tax. No VAT on capital asset as the seller is not in furtherance of a trade or business and VAT is a business tax. 30% income tax on ordinary asset is based on net income after deducting the cost and necessary expenses of the sale, while 6% on capital asset is based on the gross selling price or fair market value of the property, whichever is higher, without any deduction, normally. Accordingly, to determine for tax savings, the author suggest that a proper study be made as there could be some tax minimization schemes that may help legally reduce tax dues.

In either case of the above classifications, a Certificate Authorizing Registration (CAR) that will authorize the Registry of Deed to transfer the title in the name of the new owner is necessary. It is issued upon finding of the BIR-one time transactions (ONETT) that the correct taxes had been paid . Should there be deficiency taxes, then the BIR shall first assess the corresponding tax and require payment of the same prior to the issuance of the CAR. Upon approval of the CAR, and along with the other requirements of the registry of Deeds, the new title in the name of the buyer shall be issued.

Related link:

a. Requirements for transfer of Condo CAR in Makati City