Ease of Paying Taxes Act

State Policy and Purpose

The State policy is to provide a healthy environment for the taxpaying public that protects taxpayer rights and welfare and assures fair treatment.
The State policy is to modernize tax administration by encouraging proper and easy compliance at the least possible cost and use of resources.
The State policy is to update the taxation system, adopt best practices, and replace antiquated procedures.
The State policy is to enact policies and procedures appropriate to different types of taxpayers.

Key Amendments on Taxpayer Classification

Section 21(a) of the NIRC continues to classify national internal revenue taxes to include income tax, estate and donor’s taxes, value-added tax, other percentage taxes, excise taxes, documentary stamp taxes, and such other taxes later imposed by law and collected by the Bureau of Internal Revenue (BIR).
Section 21(b) establishes taxpayer classification for responsive tax administration:
- Micro: gross sales less than Three million pesos (P3,000.00).
- Small: gross sales Three million pesos (P3,000.00) to less than Twenty million pesos (P20,000.00).
- Medium: gross sales Twenty million pesos (P20,000.00) to less than One billion pesos (P1,000,000.00).
- Large: gross sales One billion pesos (P1,000,000.00) and above.

Updated Definitions: Filing and Payment

Section 22(KK) defines the term “filing of return” as accomplishing and submitting the prescribed tax return electronically or manually to the BIR, or through an authorized agent bank, authorized agent bank provider, or authorized tax software provider, as required by the NIRC or rules and regulations.
Section 22(LL) defines “payment of tax” or “remittance of tax” as delivering the amount of tax due or withheld electronically or manually to the BIR, or through an authorized agent bank or authorized tax software provider, as required by the NIRC or rules and regulations.

Individual Income Tax: Filing Rules

Section 51(A)(1) requires individuals, except as otherwise provided, to file an income tax return.
Section 51(A)(2)(e) exempts from filing an income tax return:
- An individual citizen of the Philippines working and deriving income solely from abroad as an “Overseas Contract Worker” under Section 23(C) of the NIRC, or as an “Overseas Filipino Worker” as defined under Republic Act No. 11641, otherwise known as the “Department of Migrant Workers Act.”
Section 51(B) provides that, except where the Commissioner otherwise permits, the return is filed with:
- any authorized agent bank,
- Revenue District Office through a Revenue Collection Officer, or
- an authorized tax software provider.
Section 51(D) provides that married individuals (citizens or resident/nonresident aliens) who do not derive income purely from compensation must file a return that includes both spouses’ income; if impracticable to file one return, each spouse may file separate returns that the BIR consolidates for verification purposes for the taxable year.

Payment, Withholding, Returns, and Trust Funds

Section 56(A)(1) requires the total tax imposed under the Title to be paid at the time the return is filed, either electronically or manually.
In the case of tramp vessels, the shipping agents and/or husbanding agents (and in their absence, the captains) must file the return and pay the tax due before departure.
If the agents or captains fail to file and pay, the Bureau of Customs may hold the vessel and prevent its departure until proof of payment is presented or a sufficient bond is filed.
Section 57(C) directs the Department of Finance to review, at least once every three (3) years, regulations and processes for withholding creditable tax, and to direct the BIR to amend rules if the existing rules adversely and materially impact taxpayers.
Section 57(C) provides that micro taxpayers are not required to withhold taxes under Section 57(b).
Section 58(A) requires quarterly returns and payments for taxes withheld under Section 57 by withholding agents, either electronically or manually, except where the Commissioner otherwise permits.
Section 58(C) states that the obligation to deduct and withhold arises at the time the income has become payable.
Section 58(E) requires that all taxes withheld under the NIRC and implementing rules be treated as trust funds, maintained in a separate account, and not commingled with any other funds of the withholding agent.
Section 58(E) provides that claims for tax credit or refund of creditable income tax withheld are given due course only when:
- it is shown the income payment has been declared as part of gross income, and
- the fact of withholding is established.
Section 58(E) allows tax credit claims for creditable withheld income from a previous period to be credited in the subsequent calendar or fiscal year if it was declared in the tax return where the corresponding income is reported.
Section 58(E) provides a refund/credit mechanism that ties excess withholding to refund subject to Section 204, and shortfall to payment consistent with Section 56.

Corporate Income Tax: Timing and Carryover

Section 76 allows a corporation entitled to a tax credit or refund of excess income taxes paid during the year to carry over and credit the excess against estimated quarterly income tax liabilities for the succeeding taxable quarters.
Once a carryover-and-apply option is made, it is irrevocable for that taxable period and no cash refund application or tax credit certificate application is allowed for that excess.
If the taxpayer cannot carry over due to dissolution or cessation of business, the taxpayer must file an application for refunds of unutilized excess income tax credit.
Section 76 requires the BIR to decide on that refund within two (2) years from the date of dissolution or cessation of business.

Corporate Quarterly Filing and Payment Deadlines

Section 77(A) provides the place of filing: except where the Commissioner otherwise permits, corporate quarterly declarations and final adjustment returns are filed electronically or manually with:
- any authorized agent bank,
- the Revenue District Office through the Revenue Collection Officer, or
- an authorized tax software provider.
Section 77(B) imposes filing deadlines:
- Corporate quarterly declaration: within sixty (60) days following the close of each of the first three (3) quarters.
- Final adjustment return: on or before April 15, or on or before 15th day of the fourth (4th) month following the close of the fiscal year.
Section 77(C) requires payment of income tax due on corporate quarterly returns and final adjustment returns at the time of filing, either electronically or manually, in a manner prescribed by the Commissioner.

Employer Withheld Taxes: Quarter-End Rule

Section 81 requires taxes deducted and withheld by employers on wages to be covered by a return and paid to the BIR through authorized agent bank, Revenue District Office through Revenue Collection Officer, or authorized tax software provider.
Section 81 requires filing of the return and payment within twenty-five (25) days from the close of each calendar quarter.
Section 81 authorizes the Commissioner, with approval of the Secretary of Finance, to require employees to pay or deposit withheld taxes more frequently as deemed necessary to protect government interests.
Section 81 provides that withheld taxes are held in a special fund in trust for the government until paid to collecting officers.

Estate and Donor Taxes: Filing and Liability

Section 90(D) provides the place of filing for estate tax returns: electronically or manually with any authorized agent bank, Revenue District Office through Revenue Collection Officer, or authorized tax software provider, unless the Commissioner otherwise permits.
Section 91(A) requires the estate tax to be paid, electronically or manually, at the time the return is filed by the executor, administrator, or heirs.
Section 91(D) imposes liability before beneficiary delivery:
- the estate tax must be paid by the executor or administrator before delivery to any beneficiary of his distributive share;
- beneficiaries are subsidiarily liable to the extent of their distributive share, based on the ratio of their share to the total net estate.

Donor’s Tax: 30-Day Filing Rule

Section 103(B) requires the donor’s return to be filed within thirty (30) days after the date the gift is made, and the tax due to be paid at the time of filing, either electronically or manually.
Section 103(B) provides that the return and tax payment are made with authorized agent bank, Revenue District Office through Revenue Collection Officer, or authorized tax software provider, unless the Commissioner otherwise permits.

VAT Core Rules: Rates, Bases, Adjustments

Section 106(A) imposes a VAT of twelve percent (12%) of the gross sales on every sale, barter, or exchange of goods or properties, payable by the seller or transferor.
Section 106(B) defines gross sales for goods/properties as the total amount of money or equivalent value in money the purchaser pays or is obligated to pay in consideration of the sale, barter, or exchange, excluding VAT; any excise tax, if any, forms part of gross sales.
Section 106(D) allows deduction from gross sales (for the quarter when refund is made or credit memorandum/refund is issued) of the value of goods or properties returned or for which allowances were granted by a VAT-registered person; it also allows exclusion within the same quarter sales discounts indicated in the invoice at time of sale and not dependent on a future event.
Section 106(E) empowers the Commissioner to determine the appropriate tax base through rules and regulations prescribed by the Secretary of Finance in cases where a transaction is deemed a sale, barter, or exchange under Section 106(B), or where gross sales are unreasonably lower than actual market value.

VAT on Services and Use/Lease

Section 108(A) imposes VAT at twelve percent (12%) of gross sales from sale/exchange of services and from use or lease of properties.
Section 108(A) defines gross sales for services/use/lease as the total amount representing contract price, compensation, service fee, rental, or royalty, including materials supplied with the services performed for another person during the taxable quarter, and amounts paid or obligated to be paid as consideration for already rendered services and already supplied use/lease, excluding VAT and certain third-party amounts/reimbursements that do not redound to the benefit of the seller.
Section 108(A) requires that for long-term contracts of one (1) year or more, the invoice shall be issued on the month in which the service, or use or lease of properties, is rendered or supplied.
Section 108(C) allows deduction from gross sales (for the quarter when refund/credit memorandum/refund is issued) of the value of services for which allowances were granted by a VAT-registered person, and allows exclusion of sales discounts similarly indicated at time of sale and not dependent on a future event.

VAT Exemptions and Threshold Updates

Section 109(CC) exempts from VAT the sale or lease of goods/properties or performance of services (other than other listed exempt transactions) where the gross annual sales do not exceed Three million pesos (P3,000,000).
Section 109(CC) requires the threshold amount to be adjusted to present values using the consumer price index published by the Philippine Statistics Authority (PSA) every three (3) years.

VAT Crediting, Uncollected Receivables

Section 110(A)(1) requires creditable input tax, evidenced by a VAT invoice issued under Section 113, to be credible against output tax for specified transactions, including:
- purchase or importation of goods for sale, conversion into/formation of finished products, use as supplies in business, use as materials supplied in sale of services, or use in trade/business;
- purchase of services on which a VAT has accrued.
Section 110(D) allows deduction of output VAT on uncollected receivables from output VAT in the next quarter after the lapse of the agreed period to pay, but only if:
- the seller has fully paid the VAT on the transaction, and
- the VAT component of the uncollected receivables has not been claimed as allowable deduction under Section 34(E).
Section 110(D) provides that when uncollected receivables are recovered, the output VAT pertaining thereto must be added to output VAT during the recovery period.

VAT Refunds and Administrative Processing

Section 112(B) allows persons whose VAT registration is cancelled due to retirement/cessation of business or due to changes in or cessation of status under Section 106(C) to apply within two (2) years from cancellation for a tax credit certificate or cash refund for unused input tax.
Section 112(C) requires the Commissioner to grant refunds for creditable input taxes within ninety (90) days from submission of invoices and supporting documents filed under Section 112(A) and (B).
Section 112(C) requires classification of VAT refund claims into law, medium, and high-risk claims using risk classification based on factors including:
- amount of VAT refund claim,
- tax compliance history,
- frequency of filing VAT refund claims, among others.
Section 112(C) subjects medium and high-risk claims to audit or other verification processes under the BIR national audit program for the relevant year.
Section 112(C) requires written legal and factual basis for denial within the ninety (90)-day period if refund is not proper.
Section 112(C) grants a taxpayer the right to appeal to the Court of Tax Appeals within thirty (30) days from receipt of the denial decision or after expiration of the ninety (90)-day period.
Section 112(C) provides that failure of any BIR official, agent, or employee to act within the ninety (90)-day period is punishable under Section 269 of the NIRC.
Section 112(D) requires VAT refunds to be made upon warrants drawn by the Commissioner or countersigned by the Chairperson, Commission on Audit, with post-audit by the Commission on Audit based on the risk-based classification.
Section 112(D) provides that if disallowed by the Commission on Audit, only the taxpayer is liable for the disallowed amount, without prejudice to administrative liability of BIR employees found grossly negligent.

VAT Invoicing: Requirements and Consequences

Section 113(A) requires a VAT-registered person to issue a VAT invoice for every sale, barter, exchange, or lease of goods or properties, and for every sale, barter, or exchange of services.
Section 113(B) mandates that VAT invoices indicate:
- a statement that the seller is a VAT-registered person and the seller’s Taxpayer Identification Number;
- the total amount the purchaser pays or is obligated to pay showing it includes VAT, with VAT shown as a separate item;
- if exempt, the term “VAT-exempt sale”;
- if zero-rated, the term “zero-rated sale”;
- if the transaction includes taxable, exempt, and zero-rated components, the invoice must clearly show the breakdown and calculations, and separate invoices may be issued for taxable, exempt, and zero-rated components.
Section 113(B)(4) requires, for sales in the amount of One thousand pesos (P1,000) or more to a VAT-registered person, the purchaser/customer/client’s name, address, and Taxpayer Identification Number.
Section 113(D)(1) provides consequences for non-VAT persons issuing invoices showing a Taxpayer Identification Number followed by the word “VAT”:
- the issuer is liable to account for VAT imposed under Section 106 or 108 without input tax credit; and
- the issuer is liable to a fifty percent (50%) surcharge under Section 248(B);
- the VAT may be recognized as input tax credit to the purchaser under Section 110 if other requisite invoice information is shown.
Section 113(D)(2) provides that if a VAT-registered person issues a VAT invoice for a VAT-exempt transaction but fails to display “VAT-exempt sale” or fails to provide the required breakdown, the issuer must account for VAT as if the exemption under Section 109 did not apply.
Section 113(D)(3) provides that if a VAT-registered person issues a VAT invoice to another VAT-registered person lacking required information, the issuer is liable for invoicing noncompliance but the VAT remains allowable as input tax credit for the purchaser if the missing information does not pertain to:
- the sales amount,
- the VAT amount,
- names and Taxpayer Identification Numbers of purchaser and issuer/seller,
- description of goods or nature of services,
- and the date of the transaction.

VAT Returns and Payment Requirements

Section 114(A) requires every person liable to pay VAT to file a quarterly VAT return electronically or manually showing gross sales within twenty-five (25) days following the close of each taxable quarter.
Section 114(A) requires VAT-registered persons to pay the VAT on a monthly basis.
Section 114(A) provides that beginning January 1, 2023, the filing and payment required under the subsection must be done within twenty-five (25) days following the close of each taxable quarter.
Section 114(B) requires returns to be filed and VAT paid electronically or manually with authorized agent bank, Revenue District Office through Revenue Collection Officer, or authorized tax software provider unless the Commissioner otherwise permits.

Enforcement: Suspension of Business Operations

Section 115 authorizes the Commissioner or authorized representative to suspend business operations and temporarily close the establishment of any person for specified violations.
For VAT-registered persons, closure applies for:
- failure to issue invoices,
- failure to file a value-added tax return as required under Section 114, or
- understatement of taxable sales by thirty percent (30%) or more of correct taxable sales for the taxable quarter.

Non-VAT Persons and Percentage Taxes

Section 116 imposes a tax equivalent to three percent (3%) of gross quarterly sales on persons whose sales are exempt under Section 109(CC) and who are not VAT-registered.
Section 116 exempts cooperatives from the three percent (3%) tax.
Section 116 reduces the rate to one percent (1%) effective July 1, 2020 until June 30, 2023.
Section 117 imposes percentage tax equivalent to three percent (3%) of quarterly gross sales on cars for rent or hire driven by the lessee, transportation contractors (including persons transporting passengers for hire), and other domestic carriers by land for passenger transport, except owners of bancas and owners of animal-drawn two-wheeled vehicle; keepers of garages are included.
Section 117 provides that common carriers’ gross sales derived from incoming and outgoing freight are not subject to local taxes under Republic Act No. 7160.
Section 118(A) imposes three percent (3%) on quarterly gross sales of international air carriers doing business in the Philippines for transport of cargo from the Philippines to another country.
Section 118(B) imposes a tax equivalent to three percent (3%) on quarterly gross sales of international shipping carriers doing business in the Philippines for transport of cargo from the Philippines to another country.
Section 119 imposes on radio and/or television broadcasting companies with annual gross sales of the preceding year not exceeding Ten million pesos (P10,000,000) (subject to Section 236) a tax of three percent (3%) on franchises; gas and water utilities are taxed at two percent (2%) on gross sales derived from business covered by the franchise law.
Section 119 gives radio and television broadcasting companies an option to register as a VAT taxpayer and pay the VAT; once exercised, the option is irrevocable.

Overseas Dispatch Tax and Exemptions

Section 120(A) imposes a ten percent (10%) tax on the amount billed for overseas dispatch, message, or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless, and other communication equipment service.
Section 120(A) requires the tax to be payable by the person paying for the services and to be collected and paid by the person rendering the service within twenty (20) days after the end of each quarter.
Section 120(B) exempts the tax for messages billed for transmissions by:
- Government of the Republic of the Philippines or political subdivisions or instrumentalities,
- diplomatic services (embassy and consular offices of a foreign government),
- public international organizations and their agencies in the Philippines enjoying privileges, exemptions and immunities pursuant to an international agreement,
- news services where messages deal exclusively with collection or dissemination of news items through public press, radio/television broadcasting, or newsticker services to another such agency or to a bona fide correspondent furnishing a general news service similar to public press.

Percentage Tax Filing and Documentary Stamp Tax

Section 128(1) requires persons subject to percentage taxes to file a quarterly return of gross sales/earnings and pay the tax within twenty-five (25) days after the end of each taxable quarter.
Section 128(1) provides that when a person’s VAT registration is cancelled and the person becomes liable to Section 116, the tax accrues from the date of cancellation and must be paid following Section 128.
Section 128(2) requires persons retiring from business subject to percentage tax to notify the nearest internal revenue officer and file a return and pay tax within twenty (20) days after closing.
Section 128(B) allows filing and payment for multiple branches/places through a consolidated return for all branches with authorized agent bank, Revenue District Officer through Revenue Collection Officer, or authorized tax software provider.
Section 200(A) requires documentary stamp tax filers to file a tax return and pay documentary stamp tax under Title VII, notwithstanding Presidential Decree No. 1045, following rules and regulations prescribed by the Secretary of Finance upon recommendation of the Commissioner.
Section 200(B) provides the general time rule: file the tax return within ten (10) days after the close of the month when the taxable document was made, signed, issued, accepted, or transferred; pay the tax at the same time as the return is filed (subject to rules on exceptions).
Section 200(C) requires filing of the return and payment through authorized agent bank, Revenue District Office through Revenue Collection Officer, or authorized tax software provider unless the Commissioner otherwise permits.

Tax Credits, Refund Claims, and Court Access

Section 204(C) authorizes the Commissioner to credit or refund taxes erroneously or illegally received or penalties imposed without authority, and to redeem/change unused stamps rendered unfit, with refund of value upon proof of destruction.
Section 204(C) prohibits credit/refund of taxes or penalties unless the taxpayer files a written claim with the Commissioner within two (2) years after payment of the tax or penalty as provided under Section 229.
Section 204(C) provides that a return filed showing an overpayment is considered a written claim for credit or refund.
Section 204(C) requires the Commissioner to process and decide refund under this provision within one hundred eighty (180) days from submission of complete documents.
Section 204(C) requires written legal and/or factual basis for denial if the Commissioner denies the claim fully or partly.
Section 204(C) makes failure to process and decide within the one hundred eighty (180)-day period punishable under Section 269.
Section 204(C) states that a valid Tax Credit Certificate may be applied against any internal revenue tax (excluding withholding taxes) for which the taxpayer is directly liable.
Section 204(C) governs conversion requests into refund of unutilized tax credits and requires surrender of the original copy of the Tax Credit Certificate showing a creditable balance for verification and cancellation.
Section 204(C) prohibits tax refunds resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.
Section 229 bars court suits for recovery of national internal revenue taxes or penalty sums until a claim for refund or credit is filed with the Commissioner.
Section 229 permits suits even if the tax was paid under protest or duress, but court filing is still subject to full/partial denial or failure of the Commissioner to act within the one hundred eighty (180)-day period.
Section 229 authorizes refund/credit even without a written claim when, on the face of the return, payment clearly appears erroneously paid.
Section 229 allows appeal to the Court of Tax Appeals within thirty (30) days from receipt of the denial decision or after expiration of the one hundred eighty (180)-day period.

Recordkeeping, Registration, and Invoicing Threshold Adjustments

Section 235 requires books of accounts and other accounting records to be preserved for five (5) years reckoned from:
- the day following the deadline for filing a return,
- or if filed after the deadline, from the date of filing,
- or from the date of filing for the taxable year when the last entry was made.
Section 235 allows examination and inspection by internal revenue officers, with income tax purpose examination and inspection to be made only once in a taxable year, subject to enumerated exceptions.
Section 236(A) requires every person subject to any internal revenue tax to register once with the appropriate Revenue District Office within ten (10) days from employment, or on or before commencement of business, or before payment of any tax due, or upon filing of a return/statement/declaration as required—electronically or manually.
Section 236(A) requires registration facilities to be available even to taxpayers not residing in the country, and requires simplification of registration and compliance requirements for self-employed individuals and/or professionals.
Section 236(B) requires registration for each type of internal revenue tax the person is obliged to register for, and