Author MRTC

Introduction

REVENUE REGULATIONS NO. 3-2024

Issued on April 11, 2024 to implement Sections 244 and 245 of the Tax Code of 1997, as amended by Republic Act No. 11976 (Ease of Paying Taxes [EOPT] Act) on amendments on VAT and Percentage Tax provisions.
 
Based on the said RR the following words shall now have uniform terminology as follows:

  1. Gross Sales – The EOPT act adopts the accrual basis of recognizing sales for both sales of goods and services. Hence, all references to “gross selling price,” “gross value in money,” and “gross receipts” shall now be referred as “GROSS SALES”, regardless of whether the sale is for goods under Section 106, or for services under Section 108 of the Tax Code.
  2. Invoice – The EOPT act mandates a single document for both sale of goods and services. Hence, all references to Sales/Commercial Invoices or Official Receipts shall now referred to as “INVOICE”.
  3. Billing for sales of service on account – All references to receipts or payments shall now be referred to as “BILLING” or “BILLED”, whichever is applicable.
  4. VAT-Exempt Threshold – The amount of VAT threshold shall be adjusted to its present value every three (3) years using the Consumer Price Index (CPI), as published by the Philippine Statistics Authority (PSA).
  5. Filing and payment – The filing of tax return shall be done electronically in any available electronic platforms while tax payment shall be made electronically in any available electronic platforms or manually to any AABs and RCOs.

The following are the specific amendments provided on the said RR:

  • Specific Amendments to Sale or Exchange of Service Under Section 108
  1. SEC. 4.108-1. VAT on the Sale of Services and Use of Lease of Properties –
    Sale of Services, exchanges, or leases outlined in Section 108(A) of the Tax Code are subject to a 12% Value Added Tax (VAT) on gross sales (excluding VAT).
  2. SEC. 4.108-4. Definition of Gross Sales –
    “Gross sales” refers to the total amount representing the contract price, compensation, service fee, rental or royalty, including materials supplied with the services during the taxable period. It excludes VAT, third-party payments, or reimbursements that do not benefit the seller. For long-term contracts, the invoice shall be issued in the month when the service, or use or lease of properties is rendered or supplied.
  3. SEC. 4.108-6. Allowable Deductions from Gross Selling Price –
    Deductions allowed from gross sales include the value of services with allowances granted by a VAT-registered person during the quarter of refund issuance and sales discounts indicated on the invoice at the time of sale, not depending on future events.
  • Specific Amendments to VAT-Exempt Transactions

 
SEC. 4.109 VAT-Exempt Transactions –
Gross annual sales below ₱3,000,000 for goods, properties, or services are exempt from VAT. This threshold amount will be adjusted every three years based on the CPI published by the PSA.
 
Self-employed individuals and professionals opting for 8% tax on gross sales and other non-operating income is exempt from paying 12% VAT.

  • Specific Amendments to Tax Credits

 
SEC. 4.110-9 – Output VAT Credit on Uncollected Receivables –
To be entitled to VAT credit, the following requisites must be present:

  1. The sale or exchange has taken place after the effectivity of these regulations;
  2. The sale is on credit or on account;
  3. There is a written agreement on the period to pay the receivable, i.e., credit term is indicated in the invoice or any document showing the credit term;
  4. The VAT is separately shown on the invoice;
  5. The sale is specifically reported in the Summary List of Sales covering the period when the sale was made and not reported as part of “various” sales;
  6. The seller declared in the tax return the corresponding output VAT indicated in the invoice within the period prescribed under existing rules;
  7. The period agreed upon, whether extended or not, has elapsed; and
  8. The VAT component of the uncollected receivable was not claimed as a deduction from gross income (i.e. bad debt).

If uncollected receivables are recovered, the output VAT related to them will be added to the output VAT of the taxpayer during the recovery period.
 
These rules do not amend the conditions on the deductibility of bad debts expenses in income tax returns, as specified in RR No. 25-02.
 
Specific Amendments to Claims for Refund/Tax Credit Certificate of Input Tax
 
SEC. 4.112-1 – Claims for Refund/Tax Credit Certificate of Input Tax –

  1. Zero-rated and Effectively Zero-rated Sales of Goods, Properties or Services
    VAT-registered persons with zero-rated or effectively zero-rated sales can apply for input tax refunds within two years after the close of the taxable quarter when such sales were made. 
    Zero-rated sales under specified sections must be paid in acceptable foreign currency per BSP rules.
    Proportionate share of input taxes can be claimed for refund if it’s challenging to attribute them directly to specific transactions involving both zero-rated/effectively zero-rated and taxable/exempt sales. 
    Input taxes of a person engaged in the transport of passenger and cargo by air or vessels from the Philippines to a foreign country are allocated proportionally between zero-rated and non-zero-rated sales (sales subject to regular rate, subject to final VAT withholding, and VAT exempt sales).
  2. Cancellation of VAT registration
    A VAT-registered person whose registration is canceled due to retirement from or cessation of business, or due to changes in status under Sec. 106(C) of the Tax Code, can apply for a tax credit certificate or cash refund within two years from the cancellation date.

This refund can be used to pay other internal revenue taxes or be refunded if there are no tax liabilities against which the tax credit certificate can be used. For the purpose of dissolution or cessation of business, the cancellation date referred to is the date of issuance of the BIR Tax Clearance.

  1. Where to file the claim for refund/credit

Claims for tax credits or refunds must be filed with the appropriate BIR Office that will be designated by the Commissioner of Internal Revenue for this purpose.

  1. Period within which refund/credit of input taxes shall be made

In proper cases, the CIR will approve refunds for creditable input taxes within ninety (90) days from the date of submitting invoices and supporting documents with the application. If the Commissioner deems the refund improper, they must provide a written explanation citing legal and factual grounds for denial.
 
The 90-day processing period starts from the filing of the claim until the release of the VAT refund payment. Filing the claim is considered only upon submitting the required invoices and documents as per relevant revenue issuances.
 
If the claim for tax refund is fully or partially denied, the affected taxpayer can appeal within thirty (30) days from receiving the decision to the Court of Tax Appeals (CTA). If the Commissioner doesn’t act on the VAT refund within the prescribed period, the taxpayer may appeal to the CTA within 30 days after the 90-day processing period or choose to wait for the Commissioner’s final decision.
 
Failure of any BIR official to act within the 90-day period is punishable under Section 269(J) of the Tax Code. If the 90-day period elapses without the refund being released, the VAT refund claim can still be processed administratively. However, any BIR official causing intentional delays may face penalties under the said Section.

  1. Risk-based approach in the verification and processing of VAT refund claims

VAT refund claims will be categorized as low, medium, or high-risk, depending on factors like the amount of VAT refund claim, tax compliance history, and frequency of filing VAT refund claims. Medium and high-risk claims will undergo audit or verification processes as per the BIR’s national audit program for the relevant year.

  1. Manner of giving refund

Refunds will be issued through warrants drawn by the Commissioner of Internal Revenue or authorized representative, without needing countersignature by the Chairman of the Commission on Audit (COA), despite provisions in the Revised Administrative Code. However, these refunds will be subject to post-audit by COA based on the risk-based classification mentioned earlier. If COA disallows any amount, only the taxpayer is liable for the disallowed amount, but administrative liability may apply to any BIR employee found to be grossly negligent in granting the refund.

  1. Automatic Appropriation

Five percent (5%) of the total VAT collection of the BIR and the BOC from the previous year will be automatically appropriated annually. This amount will be treated as a special account in the general fund or as trust receipts to fund VAT refund claims. If there are unused funds at the end of the year, they will revert to the general fund.

  1. Quarterly Report

The BIR and BOC must provide the Congressional Oversight Committee on the Comprehensive Tax Reform Program (COCCTRP) with a quarterly report detailing all pending refund claims and any unused funds.
The following are the transitory provisions upon the effectivity of this RR, which is 15 days after April 12, 2024 or April 27, 2024:

  1. Billed but uncollected sale of services. – These regulations are applicable to the sale of services that occurred after their effective date. Therefore, for outstanding receivables on services rendered before the regulations took effect, the corresponding output VAT will be declared once it’s collected. When collection occurs, the sales and corresponding output VAT will be reported in the quarterly VAT return for the period when the collection happened. This report should be supported by an invoice following the transitory provisions outlined in the RR for invoicing requirements to implement the EOPT Act or the new BIR-approved set of invoices, depending on what’s applicable.
  2. Uncollected receivables from sale of goods as of the effectivity of these Regulations. – Under Section 4.110-9 of these Regulations, the claim for output tax credit related to uncollected receivables is applicable only to transactions that occurred after the regulations took effect. There will be no output tax credit allowed for outstanding receivables from the sale of goods prior to the regulations’ effective date.