Biz captains hit new tax rules; BIR blinks

By Luis Leoncio

Widespread protests have forced the Bureau of Internal Revenue (BIR) to defer until next year the implementation of a new requirement that the bigwigs of the business sector consider to be a redundancy and a violation of their right to privacy.

The BIR wants a disclosure of tax-exempt income and those subjected to withholding tax to accompany the filing of individual income-tax returns.

Last March 27, local trade groups led by the Philippine Chamber of Commerce and Industry (PCCI) submitted a joint position paper to the Department of Finance (DOF) and the BIR opposing the mandatory submission of a Supplemental Information Return (SIR) as part of the income-tax returns (ITR) of individual taxpayers.

Among the income items required to be reported in the SIR are tax-exempt income items and those that have been subjected to final withholding taxes, like interest income from banks.

The amounts to be reported as income or receipts are the actual amounts received, fair market value or net capital gains, as the case may be.

Following the protests, the BIR amended last March 31 its memorandum order on the SIR making the requirement optional for ITR filing this year but that it will become mandatory next year.

“For income-tax filing covering and starting with calendar year 2015, the disclosures required under the supplemental lnformation portion of the said forms will be mandatory.

Thus, the taxpayers are advised to demand from their payors, and properly document their BIR Form No. 2307 and other pieces of evidence for final taxes withheld. Likewise, said taxpayers should properly receipt and book their tax-exempt income,” the BIR circular stated.

The position paper said the BIR’s mandatory-disclosure requirement violates the individual’s right to privacy and the Bank Secrecy Deposit Law.

Signatories to the joint position paper were the heads of various business groups, including Alfredo M. Yao of PCCI, Edgardo Lacson of the Employers Confederation of the Philippines, Jaime Ysmael of the Financial Executives Institute of the Philippines, Francisco del Rosario, Jr. of the Management Association of the Philippines, Sergio Ortiz-Luis, Jr. of the Philippine Exporters Confederation, Tita Caluya of the Philippine Institute of Certified Public Accountants and Terence Conrad Bello of the Tax Management Association of the Philippines.

The group said the SIR was a redundant requirement that imposes additional burden to taxpayers but does not necessarily add to the tax collections of the BIR.

“Erroneous declarations in the SIR could also expose the taxpayer to penalties of perjury, just like other tax returns,” the position paper noted.

The business groups also cited the administrative difficulty in complying with the BIR ruling, considering the nature and details of information required to be reported.

They said one of the attractions for choosing investments with tax-free income or net of tax yields is the exemption from the hassle of accounting for and reporting of income received from investments, in the case of individual taxpayers.

“The requirement to account for and report such income, just like in the case of the mandatory SIR disclosure, negates that advantage,” the position paper said.

Examples of tax-exempt income to be declared are proceeds of life-insurance policy, return of premium retirement benefits, pensions and gratuities, and personal/real property received through gifts, bequests and devises.

Also required to be reported are income items/receipts subjected to final withholding taxes that include interests, royalties, dividends, prizes and winnings, fringe benefits, compensation subject to 15-percent preferential tax rate, and sale or exchange of property.

For sale or exchange of real property, it is required that the specific property, TCT/tax-declaration number and certificate authorizing registration (CAR) number have to be reported, while for shares of stock, the information required are kinds of stock, stock certificate number, CAR number, number of shares and date of issue.

The requirement was made optional for income-tax return covering and starting with calendar year 2013 due for filing on or before April 15, 2014.

According to the business groups, the SIR mirrors practically the disclosure requirement in the Annual Information Return under RR 2–2011.

The requirement was earlier withdrawn after criticisms were raised by various sectors, including several legislators who said the SIR was a redundant requirement that imposes additional burden to taxpayers.

“While on the surface, the reporting requirement seems easy to comply with, in reality, it is difficult to implement, considering the nature and details of information required to be reported. For instance, getting such detailed information from the banks will take time, given the number of bank customers and the volume of transactions involved,” the business groups said.

Gathering and summarizing all the required details on the other passive income items is also a tedious process, they said.