Year End Tax Reminders

Here are some tax reminders for the year ending 2009 and the coming year 2010:

• Registration of Manual Books of Accounts.

Taxpayers using manual books of accounts are required to register their books before using it. Manual books of accounts that are intended for use in 2010 should be registered with the BIR on or before December 31, 2009.

However, the BIR simplified its rules when they issued Revenue Memorandum Circular (RMC) No. 82-2008. Under the said regulations, manual books that have been registered by a taxpayer but have not yet been fully utilized can still be used in the succeeding years without the need for re-stamping.

The only requirement is to label the pages applicable to a particular period for proper monitoring. In other words, a new set of books shall be registered only when the previously registered books have been fully utilized. Therefore, taxpayers are not required to register a new set of books every year.

• Payment of Registration Fees of P500

• Annualization of Withholding Taxes of Employees. This process involves the preparation of the:

- monthly withholding tax return (BIR Form 1601-C) for December which is due on January 15, 2010 for manual filers or on January 12 to 15 for those under the Electronic Filing and Payment System (EFPS), depending on their industry grouping;

- Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604-CF) including the alphabetical listing of employees which is due on February 1, 2010;

- Certificates of Compensation Payment/Tax Withheld (BIR Form 2316) which is also due for distribution to employees on or before February 1, 2010.

Those preparing these returns have to remember the increased amount of basic personal and additional exemptions of individual taxpayers amounting to P50,000 and P25,000, respectively, regardless of status (i.e., single, head of family or married) and the tax exemption of minimum wage earners.

• Preparation of Inventory List. 

Under existing tax regulations, taxpayers are required to file an inventory list of stocks-in-trade, raw materials, goods in process, supplies, and other goods not later than 30 days after the close of the taxable year.

Hence, taxpayers whose accounting period ends on December 31, 2009 should file their annual inventory list on or before January 30, 2010. In preparing the inventory list, taxpayers should ensure that the amount of ending inventory declared in the list will be the same amount reported in the audited financial statements as well as in the annual income tax return.

Since the inventory balances in the list are unaudited, it is advisable to submit an amended list in case there will be material audit adjustments. It is important that the inventory balances in the inventory listing should tally with the inventory balances in audited financial statements and annual income tax return.

• Compliance with eDST System. 

Taxpayers who are mandated to use the web-based electronic documentary stamp tax (eDST) system in the payment/remittance of their documentary stamp tax (DST) liabilities and the affixture of the prescribed documentary stamp on taxable documents have until December 31, 2009 to comply with the transitory provisions of Revenue Regulations (RR) No. 07-2009. Under the said regulations, eDST system will be fully implemented by the BIR beginning January 1, 2010.

It is never early to prepare for your taxes. If your company wants to have a smooth year-end and begin 2010 stress-free, it is best to start preparing for all the BIR requirements before the year ends to get a head start on your tax preparation next year.

RA 9504: Tax Exemption on Minimum Wage Earners

The President signed into law on June 17, 2008 Republic Act No. (RA) 9504 granting additional tax relief to individuals and corporations, as follows:

1. Exemption of minimum wage earners

The new law exempts minimum wage earners in the private and public sector from payment of income tax. The exemption will cover not only the basic pay but also holiday pay, overtime pay, night shift differential, and hazard pay received by said minimum wage earners.

Prior to enactment of RA 9504, individual employees whose compensation income does not exceed the statutory minimum wage or five thousand pesos (P5,000) per month were exempted from withholding tax under Revenue Regulations No. 01-06. The law grants minimum wage earners full tax exemption by exempting them from payment of income tax.

2. Increase in personal and additional exemptions

RA 9504 increases the level of personal exemption allowance of each individual taxpayer to a uniform amount of P50,000 regardless of the status of the taxpayer, and additional exemption allowance for each qualified dependent from P8,000 to P25,000, as follows:


Old Law New Law Increment

Single individuals 20,000 50,000 30,000
Head of family 25,000 50,000 25,000
Married individuals 32,000 50,000 18,000
Additional exemption
for each qualified
dependent/child 8,000 25,000 17,000

The maximum number of qualified dependents remained at four.

2. Optional Standard Deduction (OSD) for corporations and increased OSD for individuals

The OSD is a scheme whereby a taxpayer is given the option to deduct from his gross revenue or gross income a lump sum equivalent to a percentage of such gross revenue or gross income for purposes of computing the net taxable income on which the income tax rate will be applied. This is in lieu of the itemized deduction scheme where the taxpayer lists down all his expenses and the corresponding amounts incurred to determine the amount of allowable deductions. The option can be availed of on an annual basis and shall be irrevocable for that taxable year.

The 10% OSD allowed to an individual engaged in business and practice of profession was increased to 40% of gross sales or gross receipts.

Furthermore, corporations are now given the option to avail of the OSD at 40% of gross income. Previously, they were only allowed to claim itemized deductions in computing their taxable net income.

The law shall take effect on July 7, 2008, 15 days after its publication in Malaya and Manila Bulletin newspapers on June 22, 2008. The new law shall be effective starting taxable year 2008. A revenue regulations will be issued by the BIR to implement the adjustment in the withholding taxes.

De Minimis Benefits

The BIR exempts de minimis benefits pursuant to Revenue Regulations (RR) No. 3-98, as amended. Examples of de minimis benefits include contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; or certain benefits given to rank and file, whether granted under a collective bargaining agreement or not; or de minimis benefits; or fringe benefits to the employee which is granted is required by the nature of or necessary to the trade, business or profession of the employer; or such grant of the benefit or allowance is for the convenience of the employer.

The BIR sets a limit on the value of tax-exempt de minimis benefits. Under RR 8-00, as amended by RR 10-00, the BIR considers the following as de minimis benefits:

*
10 days monetized unused vacation leave credits;
*
medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month;

*
actual medical benefits not exceeding P10,000.00;
*
laundry allowance of P300 per month;
*
employee achievement awards in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan;
*
flowers, fruits, books or similar items given to employees under special circumstances, e.g. on account of illness, marriage, birth of a baby, etc.; and
*
daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.

Effective beginning May 10, 2008, (Revenue Regulations No. 5-2008) employees receiving the following benefits from their employers shall enjoy higher tax exemption thresholds:

o Rice allowance - from the current P1,000 per month to P1,500
o Uniform and clothing allowance - from the current P3,000 per year to P4,000

All other benefits not mentioned above shall be not be considered as de minimis benefits and shall be subject to withholding tax on compensation as per  Revenue Regulations No. 5-2011 on March 16, 2011 amending the provisions of Revenue Regulations Nos. 2-98 and 3-98 pertaining to the exemption from income tax from compensation and from fringe benefits tax of de minimis benefits.
ftp://ftp.bir.gov.ph/webadmin1/pdf/56846RR%205-2011.pdf