About a month ago, House Bill No. 8083 or Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) was passed on to the Senate. Discussions of its provisions are undeniably necessary so that the Philippines does not end up with hasty-implemented rules that may produce unintended consequences.
Perhaps one of the least talked about, yet highly challenging, provisions of the TRABAHO Bill is the move towards mandatory electronic invoicing and sales reporting.
This initiative was initially introduced in the first package of the comprehensive tax reform program, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law. The TRAIN Law mandated taxpayers engaged in exporting goods and services, taxpayers engaged in e-commerce, and taxpayers under the jurisdiction of the Large Taxpayers Service to issue electronic receipts or invoices, in lieu of manual receipts. Moreover, they are also required to electronically report their sales data to the Bureau of Internal Revenue (BIR) through the use of electronic point of sales systems.
Sections 17 and 18 of the TRABAHO Bill discuss the same requirements with additional provisions on transmitting electronic receipts or invoices through designated electronic channels with a public certification system accredited by the BIR. As a security measure, digital signatures, electronic tax transaction numbers, and the like are to be put in place to verify the identity of the issuing taxpayer, as well as to verify the information in the invoices. Similar with manual invoices, digital records are also required to be kept and maintained for three years from the close of the taxable year in which they were issued.
Simply put, these taxpayers are required to use a system that is capable of issuing electronic receipts or invoices, collecting transaction records, and transmitting these records to the BIR. Within five years of the Bill being passed into law, and upon establishment of a system capable of storing and processing the required data, the concerned stakeholders are expected to have complied.
The premise is that this system will simplify and speed up not only business transactions but the tax administration procedures of the government as well. Essentially, in an electronic invoicing and sales reporting system, both the issuer and the recipient of the invoice can access and review the invoices generated. On the other hand, tax authorities are also able to collect and analyze the electronically transmitted data in real time.
Consumer behavior nowadays leans towards whatever is the most convenient; suppliers or service providers are also inclined to transact business in the medium of their customers’ choice. The less time spent on processing purchase orders, correcting errors, and filing and archiving paper invoices, the more time and resources can be spent on improving the business and its people. In addition, e-invoicing is a good business practice in terms of environmental sustainability. Although printing one less paper invoice may not clean up the Pasig River, digitizing millions of paper receipts has a significant impact.
As convenient as it may sound, what this regulation also means for businesses, as well as for the government, is an additional expenditure. Setting up, operating, and maintaining an electronic invoicing and sales reporting system will require a huge amount of capital, let alone the tedious approval process required before its implementation. Presently, the Computerized Accounting System (CAS) registration takes several months before it can be approved.
Fortunately, the proposed TRABAHO Bill provides tax incentives to mitigate the cost of transitioning towards e-invoicing. From the first to the fourth year of the implementation period, a taxpayer who adopts the required system shall be granted a tax credit of 0.1% of the purchase value for every electronic receipt or invoice transmitted through the designated electronic channels and issued with an electronic tax transaction number.
In support of electronic sales reporting systems, the BIR may grant allowable deductions equivalent to 10% of the amount of every electronically traceable payment (ETP) made. ETPs refer to payments through debit or credit cards or other methods that may link the specific payment to its payer.
The BIR also has the authority to establish a receipt and invoice lottery program. In Taiwan, for example, each invoice is tagged with a unique government-issued lottery number, which is then used as the basis for a regular draw. This kind of positive reinforcement in the tax system is actually gaining popularity in several countries as a way to increase sales tax collection and to encourage businesses to truthfully report income and pay taxes. Should the Philippines have something like this, one can only hope that the jackpot prize goes as high up as P800 million.
Electronic invoicing, electronic sales reporting, and perhaps even an invoice-based lottery are opportunities for improving the processes in the Philippine tax system; however, these can only be achieved through the cooperation of taxpayers, tax administrators, and lawmakers altogether.
Mica Dyan T. Borja is a senior of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.