TRAIN Law: Updating the Certificate of Registration

SUITS THE C-SUITE By Rosalie T. Lapuz

Business World (08/27/2018 – p.S1/4)

LIKE its fast-moving namesake, the effects of the TRAIN (Tax Reform for Acceleration and Inclusion) Law or Republic Act. No. 10963 continue to have impact on professionals and entrepreneurs.

The Bureau of Internal Revenue (BIR) has issued several regulations to implement the TRAIN Law, such as requiring certain compliance reports and submissions from taxpayers. These regulations have raised new concerns with taxpayers since non-compliance will have corresponding fines and administrative penalties.

Among the requirements of the BIR is for income payees to submit to their income payors a sworn declaration of their gross receipts/sales together with a copy of their Certificate of Registration (COR). Previously, sole proprietors, professionals or mixed-income earners whose gross receipts exceeded P1,919,500.00 were required to register as value added tax (VAT) covered persons. As such, the covered professionals and entrepreneurs must obtain a COR that reflects that they are VAT-registered taxpayers.

With the TRAIN Law, the ceiling for VAT registration has been increased to P3,000,000.00. Interestingly, this new threshold determines the difference between withholding tax rates of 5% and 10%.

Specifically, under Revenue Regulations (RR) No. 14-2018, if the gross income of the professional for the current year does not exceed P3 million, the withholding tax rate is 5%. If gross income is more than P3 million or the income payee is VAT-registered (regardless of amount), the withholding tax rate is 10%.

Moreover, except for VAT-registered taxpayers, the P3 million mark has also been identified as a point of reference for self-employed individuals or professionals availing of 8% tax in lieu of the graduated income tax rates under the TRAIN Law.

In particular, wholly self-employed individuals or professional practitioners whose gross sales and/or receipts do not exceed P3 million and/or are not VAT-registered taxpayers were given the option to avail of an 8% tax on their gross sales or gross receipts and other non-operating income in excess of P250,000 in lieu of the graduated income tax rates under the Tax Code.

As the P3 million threshold determines both the applicable withholding tax rate for individual professionals and the necessity of registration as VAT-registered taxpayer, the BIR has issued RR No. 11-2018, as amended. It provides that income payees have the responsibility to submit a Sworn Declaration of their gross receipts/sales together with a copy of the COR. The documents submitted will be used by income payors as the basis to determine the applicable withholding tax rate to individual payees in cases of payment of professional fees.

This requirement serves a practical purpose for the BIR as it abbreviates the process of determining the applicable tax rate. For example, a VAT-registered person will automatically be subjected to the 10% withholding tax rate.

Reference to Section 236 of the Tax Code reveals that the lawmakers have long considered the possibility that changes in taxpayers’ registered tax type and details may occur. In fact, under Section 236, taxpayers have the obligation to update their registration whenever applicable. The BIR, in Revenue Regulation (RR) No. 07-2012, or the Amended Consolidated Revenue Regulations on Primary Registration, Updates, and Cancellation, has also promulgated guidelines in the event of changes in the registered tax types and details of taxpayers. It provides that registered taxpayers are required to update their registration information with the Revenue District Office where they are registered whenever there is any change in tax type and details. Examples of updates include, but are not limited to, change of surname, change of address within same district office, or exemption status.

For this reason, taxpayers who opt to avail of the 8% income tax rate in lieu of the graduated income tax rates under the TRAIN Law must submit an updated COR considering that there is a change in their registered tax type.

However, under RR No. 8-2018, all existing VAT registered taxpayers, whose gross sales/receipts and other non-operating income in the preceding year did not exceed the VAT threshold of P3 million, have the option to update their registration to non-VAT. If qualified VAT registered taxpayers opt to update their registration to Non-VAT, it would be likely that they must also submit an updated COR to reflect the option that they made.

The obligation of updating one’s COR is not a new requirement considering that the previous Tax Code mandated the update if the status of a taxpayer changes. In fact, this requirement was also reiterated by the taxing authority in several issuances. We should all note that, in addition to bringing about tax reform for the country, the changes brought about by the TRAIN Law remind taxpayers to become more aware of their tax responsibilities at all times.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

Rosalie T. Lapuz is a Director at SGV — Financial Services Tax.