By Chiara Feliz Gutierrez, 30 January 2014
THE BUREAU of Internal Revenue (BIR) has issued its first revenue regulation for the year, further amending the withholding tax regulations. Revenue Regulations (RR) No. 1-2014 provide new requirements on the submission by withholding agents of the alphabetical list (“alphalist”) of their employees and income payees which are required attachments to the Annual Information Returns (BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601).
Taxpayers should note the following procedural changes under the RR:1. The BIR will no longer accept manual submission of alphalists beginning Jan. 31, 2014.2. The BIR will no longer accept alphalists in floppy diskette / CD format. The only valid modes of submission will be through electronic submission: (a) as attachments in the Electronic Filing and Payment System (eFPS); (b) using the BIR’s e-mail address at firstname.lastname@example.org; and (c) at dedicated BIR addresses using the prescribed CSV data file format, the details of which shall be covered by a separate revenue issuance.3. Submission of alphalists where income payments and taxes withheld are lumped into one single sum or amount (e.g. various employees, various payees, PCD nominees, others, etc.) shall not be allowed.
To ensure that all withholding agents are able to comply with the electronic mode of submission (even those that do not have internet access), the RR allows them to submit the alphalist through available BIR e-lounge facilities of the nearest revenue district office or revenue region where they are registered.
While these procedural changes are reasonable given advances in technology (are there still 3.5-inch floppy diskettes?), what is alarming about the new RR is that it imposes a very steep penalty for non-conformity with the prescribed format.
Under the RR, if a withholding agent fails to comply with the prescribed format thereby resulting to unsuccessful uploading into the BIR system, said withholding agent will be considered as not having filed the alphalist. As a consequence, the withholding agent’s payments to its employees and income payments to payees as contained in the non-compliant alphalists would be disallowed as deductible expenses for income tax purposes.
This penalty in the form of expense disallowance practically comes at the heels of RR 12-2013 issued last year, where expense deductions were also similarly disallowed even if taxpayers were to settle their withholding tax deficiencies during an audit.Both RRs provide steep penalties. However, while last year’s RR can be anchored on Section 34 (K) of the Tax Code covering the requirements for allowable deductions, the proposed disallowance in the new RR based on non-submission of alphalists does not appear to have similar legal basis.
The Secretary of Finance, upon recommendation of the BIR Commissioner, is authorized to promulgate revenue regulations for the effective enforcement of the Tax Code. The Tax Code (Section 245) even specifically requires such revenue regulations to prescribe the manner in which tax returns, information and reports shall be prepared and reported. In this case, the relevant Tax Code provisions that the new RR is specifically implementing are Sections 58 and 83 covering the submission of annual information returns (BIR Forms 1604) and the requirement that they contain the list of employees/payees, total amount of compensation income/income payments, amount of taxes withheld from each employee/payee and such other pertinent information as may be required.
The Tax Code does not provide for automatic disallowance of expense deductions for failure to strictly comply with the required submission of information returns and the supporting alphalists. At most, the Tax Code provides for a penalty of P1,000 (with a maximum cap of P25,000 for each calendar year) should there be deficiencies in complying with the required submissions due to reasonable causes and not due to willful negligence. In fact, in case of willful failure to supply correct and accurate information, the monetary fine under Section 255 is P10,000.Clearly, while the BIR is authorized to issue regulations to enforce our tax laws, the exercise of its quasi-legislative or rule-making power is subject to limitations.
It is a well-established principle in administrative law that rules and regulations that are issued for the implementation of a law cannot go beyond the terms and provisions of the law they seek to implement. Otherwise, it amounts to unauthorized legislative administration, and therefore invalid.Taxpayers should be mindful that the first alphalist submission that will be affected by these new rules is the alphalist of employees/payees supporting the Annual information Return of Income Tax Withheld on Compensation and Final Withholding Taxes (BIR Form 1604-CF) which is due on or before the 31st of January every year. This year, the deadline falls on Monday (Feb. 3).However, since it is clear that the proposed expense d
The author is an assistant manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may call 845-2728 or e-mail the author at email@example.com for questions or feedback.The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.