REVENUE REGULATIONS NO. 18-2006

SUBJECT : Improved Voluntary Assessment Program (IVAP) for Taxable Year 2005 and Prior Years under Certain Conditions

TO : All Internal Revenue Officers and Others Concerned
_______________________________________________________________
Pursuant to Section 244, in relation to Sections 6, 204, 254, 255,256, and other pertinent provisions of the National Internal Revenue Code (NIRC), these Regulations are hereby promulgated to provide for the policies, procedures and guidelines in the implementation of IVAP for the collection of additional tax revenue, which could otherwise be collected through audit and enforcement effort.

The program covers all types of taxes including taxes for one-time transactions, and may be availed of by qualified taxpayers on a per taxable year/period and on a per tax-type basis.

POLICY STATEMENT

To maximize revenue collection with least administration costs, to encourage voluntary tax compliance, and to maintain harmonious relation with taxpayers by minimizing inconvenience relative to investigation, the taxpaying public is hereby granted the opportunity to avail of the privilege of last priority in audit under this Program in accordance with the rules herein prescribed.

SECTION 1. COVERAGE. — The privilege of last priority in audit and investigation herein granted shall apply to all internal revenue taxes covering taxable years ending December 31, 2005 and fiscal year ending on any day not later than June 30, 2006 and all prior years, including one-time transactions such as estate tax, donor's tax, capital gains tax, final withholding tax, expanded withholding tax and documentary stamp tax on the transfer, sale, exchange, or disposition of assets. This Program shall likewise cover taxpayers enjoying preferential tax treatment.

Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal revenue taxes for the above specified period/s who, due to inadvertence or otherwise, erroneously paid his/its internal revenue tax liabilities or failed to file tax returns/pay taxes, may avail of the IVAP, except those falling under any of the following instances:

a. Those taxpayers who have already been issued a Preliminary Assessment Notice (PAN) and/or Final Assessment Notice (FAN) on or before the effectivity of these regulations with respect to the internal revenue taxes applicable to the taxable period(s) covered by the PAN or FAN;

b. Persons under investigation as a result of verified information filed by a Tax Informer under Section 282 of the NIRC, duly processed and recorded in the BIR Official Registry Book on or before the effectivity of these regulations;

c. Tax fraud cases filed and pending in the Department of Justice or in the courts for adjudication;

d. Those with unpaid tax liability as admitted and reflected in the books of accounts/records, or financial statements and tax returns of the covered period, with respect to the tax type covered by the said admitted tax liability, unless they first pay the same (i.e., DST payable, withholding tax payable, and unpaid individuals' second installment of income tax, etc.);

e. Cases handled by the Bureau of Internal Revenue under the Run After Tax Evader (RATE) Program; and
f. Cases in which Letter Notices (LNs) were issued, where the discrepancy in sales exceeds 30% of sales of base year or the discrepancy in purchases exceeds 30% of the purchases of the base year.

SECTION 2. TAXPAYER'S BENEFIT FROM AVAILMENT OF THE IVAP. — A taxpayer who has availed of the IVAP shall not be audited, except upon prior authorization and approval of the Commissioner of Internal Revenue when there is strong evidence or finding of understatement in the payment of a taxpayer's correct tax liability by more than thirty percent (30%), as supported by a written report of the appropriate office stating in detail the facts and the law on which such finding is based: Provided, however, that any IVAP payment should be allowed as tax credit against the deficiency tax due, if any, in case the concerned taxpayer has been subjected to tax audit.

Audit of taxpayers shall automatically be suspended upon filing of application and payment of the IVAP amount. However, if the audit case is prescribing within six (6) months from date of application and payment of the IVAP, the availment should be evaluated by the investigating office within 5 days from receipt of the payment to determine its qualification hereunder. If after evaluation, the taxpayer has been disqualified under these regulations, the audit shall be revived and should proceed accordingly. Letters of Authority (LAs)/Audit Notices (ANs), Letter Notices (LNs), Taxpayer Verification Notices (TVNs) and Mission Orders (MOs) shall be cancelled and withdrawn for IVAP availments with issued Certificate of Qualification.

The suspension of audit/investigation and the cancellation of the authority to audit/investigate, shall be on a per taxable year/period and on a per tax type basis or only on the kind of tax covered by the IVAP availment.

Before any LA/AN, TVN or MO is issued against a taxpayer for the taxable year/s covered by IVAP, it is incumbent upon the investigating office to ensure that the taxpayer has not validly availed of the IVAP.

SECTION 3. DEFINITIONS. —

a) Applicable Taxable Year/Period – refers to the taxable year/period for which qualification under the IVAP is sought.

b) Base Year/Period – refers to the taxable year/period immediately prior to the Applicable Taxable Year/Period. Thus, if a taxpayer avails of the IVAP for income tax for taxable year 2005, the Base Year from which the growth rate shall be determined is taxable year 2004. (For one-time transactions, the base year/period will not apply.)

c) Prior Years - refers to taxable year 2004 and prior years in which period no Preliminary Assessment Notice (PAN) or Final Assessment Notice (FAN) has been issued against a taxpayer liable to pay income tax, business tax and other internal revenue tax.

d) Net Value-Added Tax Due (net VAT due) – refers to the difference between the output tax and input tax {i.e. net vat=output tax-input tax}.

Example:

Output Tax

P150,000.00

Input tax carried over from previous quarter

P 20,000.00

Input Tax from Domestic Purchases

100,000.00

Input Tax from Importation

20,000.00

140,000.00

NET VAT DUE

P10,000.00

e) Percentage Tax Due – refers to the tax due per return, which is the product of gross sales/receipts and the applicable percentage tax rate {i.e. tax due=gross sales/receipts x percentage tax rate}.

f) Income Tax Due – refers to the income tax due per final or annual income tax return, undiminished by any amount of withholding tax or tax credit.

SECTION 4. CONDITIONS FOR AVAILMENT AND MANNER OF COMPUTING THE IVAP AMOUNT. — The IVAP applicant-taxpayer shall signify his intention to avail of last priority in the audit and investigation by filing his application and paying the required amount to comply with the IVAP formula with the appropriate BIR collection agent [Accredited Agent Bank (AAB) or Revenue Collection Officer (RCO)/Deputized Municipal Treasurer (DMT), in the absence of AAB] and filing his application form, proof of payment and other necessary attachments to the Revenue District Office having jurisdiction over the taxpayer’s registered address using BIR Forms to be prescribed by the Commissioner subject to the following conditions:

a) Computation of IVAP amount payable. — Compliance with IVAP requirement shall be the total payment for the covered year of the amount in condition no. (1) but with a minimum payment of the absolute amount in condition no. (2) in the year of availment.

Kind of Tax Condition No. (1)
Prescribed Percentage in
the Applicable or Covered
Taxable Year
Condition No. (2)
Minimum IVAP Payment in
Absolute Amount Per
Taxable Year

I. Income Tax
(including payment
under MCIT)


a) With Returns Filed
in the covered year
and base year.

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year

• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due
in the covered year.

• Individuals with P10 M in
assets or less –
P25,000, or one-half of
one percent (1/2 of 1%)
of sales, whichever is
higher

• Individuals with more
than P10M in assets-
P100,000, or one-half of
one percent (1/2 of 1%)
of sales, whichever is
higher

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less–
P50,000, or one-half of
one percent (1/2 of 1%)
of sales, whichever is
higher

• Corporation with more
than P10M in assets –
P100,000, or one-half of
one percent (1/2 of 1%)
of sales, whichever is
higher

• Large Taxpayers (LTS) –
P20,000,000


• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

II. Improperly
Accumulated Earnings
Tax

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or zero tax due
in the base year

• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due
in the covered year.

• Corporation - P100,000
• Large Taxpayers (LTS) –
P10,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P10,000,000

III. Value Added Tax
(VAT)

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero net
VAT due in the base
year

• Net VAT due for the
applicable/covered year
is 30% higher than that
of the base year.

• Net VAT due is at least
three percent (3%) of the
gross sales/gross
receipts of the covered
year

• Individuals with P10 M in
assets or less –
P50,000, or one percent
(1%) of sales, whichever
is higher.

• Individuals with more
than P10M in assets-
P100,000, or one percent
(1%) of sales, whichever
is higher.

• Estate/Trust – P100,000

• Corporation with P10M
in assets or less–
P100,000, or one percent
(1%) of sales, whichever
is higher.

• Corporation with more
than P10M in assets –
P200,000, or one percent
(1%) of sales, whichever
is higher.

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

IV. Percentage Tax

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year

• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due
in the covered year.

• Individuals with P10 M in
assets or less –
P50,000, or one-half of
one percent (1/2 of 1%)
of sales, whichever is
higher.

• Individuals with more
than P10M in assets-
P100,000, or one-half of
one percent (1/2 of 1%)
of sales, whichever is
higher.

• Estate/Trust – P100,000

• Corporation with P10M in
assets or less –
P100,000, or one-half of
one percent (1/2 of 1%) of
sales, whichever is higher.

• Corporation with more
than P10M in assets –
P200,000, or one-half of
one percent (1/2 of 1%)
of sales, whichever is
higher.

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

V. Excise Tax


a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year

• The total tax due for the
applicable/covered year
is at least 30% higher
than that of the base
year.

• At least increase of 30%
of the declared tax due
in the covered year.

• Individuals with P10 M in
assets or less – P50,000

• Individuals with more
than P10M in assets-
P100,000

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less– P50,000

• Corporation with more
than P10M in assets –
P100,000

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

VI. Documentary
Stamp Tax (DST on
business)

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year

• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due
in the covered year.

• Individuals with P10 M in
assets or less– P25,000

• Individuals with more
than P10M in assets-
P100,000

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less – P50,000

• Corporation with more
than P10M in assets –
P100,000

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

VII. Withholding Tax
on Compensation
Payment;

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year


• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due in
the covered year.

• Individuals with P10 M in
assets or less – P25,000

• Individuals with more
than P10M in assets-
P100,000

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less– P50,000

• Corporation with more
than P10M in assets –
P100,000

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

VIII. Expanded
Withholding Tax

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year


• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due in
the covered year.

• Individuals with P10 M in
assets or less – P25,000

• Individuals with more
than P10M in assets-
P100,000

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less– P50,000

• Corporation with more
than P10M in assets –
P100,000

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

IX. Final Withholding
of Income Tax

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year



• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due in
the covered year.

• Individuals with P10 M in
assets or less – P25,000

• Individuals with more
than P10M in assets-
P100,000

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less– P50,000

• Corporation with more
than P10M in assets –
P100,000

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

X. Withholding of
Business Tax

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year

c) Without Returns
Filed or with zero tax
due in the base year

• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.


• At least increase of 30%
of the declared tax due in
the covered year.

• Individuals with P10M in
assets or less – P25,000

• Individuals with more
than P10M in assets-
P100,000

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less– P50,000

• Corporation with more
than P10M in assets –
P100,000

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

XI. Taxes on One-
Time Transaction
(Estate Tax, Donor’s
Tax, Capital Gains Tax,
Expanded Withholding
Tax, Documentary
Stamp Tax on Sale or
disposition of assetsreal
property or
personal property,
including shares of
stock)

a) With Returns Filed

b) Without Returns
Filed

• Payment of 130% of the
unpaid tax due for the
covered transactions.

• 130% of the declared
unpaid tax due for the
covered transactions.


XII. Taxpayers under
Preferential rates
(PEZA, SBMA, etc.)

a) With Returns Filed
in the covered year
and the base year

b) Without Returns
Filed in the covered
year


c) Without Returns
Filed or with zero tax
due in the base year

• The total tax due for the
applicable/covered year
is at least 30% higher
than the tax due of the
base year.

• At least increase of 30%
of the declared tax due in
the covered year.

• Individuals with P10 M in
assets or less – P25,000

• Individuals with more
than P10M in assets-
P100,000

• Estate/Trust - P50,000

• Corporation with P10M in
assets or less– P50,000

• Corporation with more
than P10M in assets –
P100,000

• Large Taxpayers (LTS) –
P20,000,000

• Taxpayers with cases
handled by the National
Investigation Division -
P20,000,000

XIII. Accrued Penalties • 30% of the basic tax paid

Payment of the minimum absolute amount in Condition No. 2 is required for all IVAP applications, where the required percentage increase has already been met in the tax due for the covered year.

The base year mentioned herein shall be the immediately preceding year.

Any deficiency tax paid for the base year shall form part of the tax due or net VAT due of the base year.

b) Other Conditions:

b.1 Mode and Treatment of IVAP Payment. — IVAP payments shall not include any tax debit memo, creditable withholding tax, MCIT carry-over and income tax carry-over from prior period. The IVAP payment cannot be used as tax credit in the year of payment as well as in the returns for subsequent year/s nor as a deduction for internal revenue tax purposes. Nonetheless, if despite IVAP availment, tax audit is conducted on the covered year under the circumstances allowed by these Regulations or prescribed by the law, e.g., Refund Case, the IVAP payment shall be credited against the deficiency tax after audit.

It is to be noted, however, that IVAP availment is not an admission on the part of the taxpayer of erroneous payment of the tax as well as of failure to file returns and pay the required tax.

b.2 Issuance of the Certificate Authorizing Registration or the Tax Clearance Certificate for Taxes on One-time Transactions. — The Tax Clearance Certificate or the Certificate Authorizing Registration shall be issued in accordance with the procedures prescribed by the Bureau of Internal Revenue after the verification of the taxpayer's compliance of the asset and liability valuation rules as well as evaluation of the documents submitted to substantiate the assets reported and the deductions claimed. The clearance to be issued shall cover only the assets declared by the taxpayer in the tax return/declaration and verified by the BIR to be properly valued and completely tax-paid.

SECTION 5. TREATMENT OF INVALID AVAILMENT OF THE NO AUDIT PROGRAM (NAP) OR ENHANCED VOLUNTARY ASSESSMENT PROGRAM (EVAP). — Taxpayers who have applied for NAP or EVAP but whose availments are found to be invalid may avail of the privilege under this program. Payment under NAP or EVAP may be credited against the IVAP on a per tax type basis.

SECTION 6. TREATMENT OF INVALID AVAILMENT OF THE IVAP. — Taxpayers who have applied for IVAP but whose availments are found to be invalid may apply said payments against the deficiency taxes for the same taxable year on a per tax type basis. Invalid availments include, among others, those cases enumerated as exceptions under Section 1 hereof.

SECTION 7. INSTALLMENT PAYMENT. — When the IVAP amount is in excess of Five Million Pesos (Php 5,000,000.00), the taxpayer may elect to pay the tax in three (3) equal installments provided that all installment payments shall be made on or before November 29, 2006 unless extended by the Commissioner.

If any installment is not paid on or before the date fixed for its payment, the whole amount of tax unpaid becomes due and payable or else, the IVAP application shall be denied and payment invalidated as IVAP payment.

Notwithstanding the above terms for installment payment, taxpayers may request in writing an extension for installment payment of IVAP on the ground of financial incapacity. The request shall be approved by the concerned Regional Director/Officer-in-Charge, Large Taxpayers Service upon compliance with the following conditions:

7.1. Taxpayer must submit a list of banks in which he/it maintains bank deposits/accounts;

7.2. Taxpayer must execute a waiver of secrecy of bank deposits thereby authorizing the BIR to inquire into the bank accounts of the taxpayer in order to verify his claim of financial incapacity;

7.3. Taxpayer must submit a written undertaking to pay the IVAP installments within a period not exceeding six (6) months from date of filing his/its IVAP application; and

7.4. Taxpayer must put up a bond corresponding to the installment payments to be made if the tax case is prescribing within six (6) months from the date of filing the IVAP application.

The above requirements must be filed with the Revenue District Office (RDO) having jurisdiction over the taxpayer, or with the Large Taxpayer Service (LTS), in the case of large taxpayers, at the time of the submission of IVAP application form.

SECTION 8. PROCESSING OF APPLICATIONS AND ISSUANCE OF THE CERTIFICATE OF QUALIFICATION. — The Commissioner of Internal Revenue is hereby authorized to issue the necessary and appropriate internal revenue issuances to facilitate implementation of these regulations. All IVAP Application Forms (AF) and validated IVAP Payment Form (PF), and such other documents as may be required and duly received by the RDO or LTS shall serve as proof of the taxpayer’s availment of IVAP. All IVAP availments made pursuant hereto shall be subject to the review and evaluation of the concerned Regional Office/Large Taxpayer’s Service, and upon verification of the correctness of the taxpayer's availment of the privilege of last priority in the audit and investigation, the Regional Director/Officer-in-Charge, Large Taxpayers Service shall issue a Certificate of Qualification for the privileges herein granted. Nonetheless, if the review reveals deficiencies or defects in the IVAP availment, the reviewing BIR Office shall inform the originating BIR Office to require the taxpayer to comply, correct or rectify the deficiencies or defects. Upon completion of all the requirements and satisfaction of all the conditions, the Certificate of Qualification shall be issued.

The IVAP availment shall be reviewed within thirty (30) days from date of application and payment and the resulting Certificate of Qualification or Notice of Disqualification, whichever is applicable, shall accordingly be issued. A taxpayer who has received a Notice of Disqualification may appeal the same to the Assessment Service, through the Assessment Programs Division, whose recommendation shall be subject to approval by the Commissioner after review by the Deputy Commissioner, Operations Group.

Selected IVAP availments may be subjected to post audit by the Assessment Service to check the competence and efficiency of the processing BIR personnel.

SECTION 9. DEADLINE FOR AVAILMENT. — This Program is valid until November 29, 2006, subject to extension by the Commissioner on meritorious grounds.

SECTION 10. EFFECTIVITY CLAUSE. — These Regulations shall take effect after fifteen days (15) days following publication in any newspaper of general circulation.

(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
A-1

REVENUE REGULATIONS NO. 17-2006

SUBJECT : Prescribing the Rules on the Accreditation, Registration, and Use of Taximeter Issuing Receipts (TIR) Systems and/or Models and Other Similar Types of Machines Generating Official Receipts.

TO : All Internal Revenue Officials and Others Concerned

BACKGROUND
All persons subject to internal revenue taxes are required under Sec. 237 of the Tax Code of 1997, as amended (Tax Code), to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for services rendered valued at twenty five pesos (P25.00) or more, the total of which shall be the basis for the computation of their tax liabilities. In relation thereto, common carriers, specifically taxis, were mandated by the Land Transportation Franchising and Regulatory Board (LTFRB), thru its Memorandum Circular No. 2003-010, dated April 25, 2003, Memorandum Circular No. 2003-020 dated Aug. 7, 2003 and Memorandum Circular No. 2005-039 dated Nov. 16, 2005 to use taximeters with receipt issuing facility, for issuance of sales or official receipts to customers/passengers.

Section 1. SCOPE. - Pursuant to the provisions of Sec. 244 in relation to Sec. 237 of the Tax Code and LTFRB Memorandum Circular Nos. 2003-010, 2003-020 and 2005-039, these regulations are hereby promulgated to prescribe the rules on the accreditation, registration, and use of TIR in each taxi unit allowed by the LTFRB to operate within Metro Manila under the aforesaid circulars.

Section 2. COVERAGE. – All grantees of “Certificates of Public Convenience to Operate Taxi Air-Conditioned Service” by the LTFRB which are based in or operating within Metro Manila shall be equipped with a TIR which shall be used to generate receipts for issuance to customers/passengers, in lieu of manually issued or other forms of official receipts.

Section 3. ACCREDITATION, REGISTRATION, AND USE OF TAXIMETER ISSUING RECEIPT (TIR) SYSTEMS AND/OR MODELS. – The Accreditation, Registration, and Use of TIR Systems and/or Models and Other Similar Types of Machines Generating Official Receipts shall be in accordance with the provisions of Revenue Regulations No. 11-2004 [Rules and Regulations on the Accreditation, Registration and Use of Cash Register Machines (CRM), Point-of-Sale (POS) Machines and/or Business Machines Generating Receipts/Invoices] and Revenue Memorandum Order No. 10-2005 [Polices and Procedures in the Accreditation of Cash Register Machines (CRM), Point of Sale (POS), Other Sales Machines Including Sales Receipting System Software and Registration for the Use Thereof Pursuant to Revenue Regulations No. 11-2004 and Revenue Regulations No. 5-2005].

Section 4. STANDARD RECEIPT FORMAT OF TIR GENERATED RECEIPTS FOR TAXIS. – The official receipts to be generated by the TIR must show, among others, the data enumerated in items a to q. However, items a to d must be printed consecutively in the following order in the Official Receipt Header:

a. Business Name/Name of Taxi;

b. Registered Taxpayer’s Name with BIR;

c. Taxpayer’s Identification Number (12 digits including Branch Code);

d. Address of Operator;

e. Telephone Number;

f. Receipt/Invoice Number (minimum of 6 digits);

g. Accreditation Number;

h. Permit Number;

i. Plate Number;

j. Color Coded Body Number;

k. Date of Transaction;

l. Start;

m. End;

n. Distance;

o. Waiting Time;

p. Amount of Fare (In Philippine Peso);

q. “THIS SERVES AS AN OFFICIAL RECEIPT”.

Section 5. PENALTIES FOR VIOLATION. – Taxi operators/transportation contractors as well as suppliers/vendors of TIR system and/or model found violating the herein provisions and other related issuances shall be subject to the penalties imposed under the Tax Code and applicable laws.

Section 6. TRANSITORY PROVISIONS. – All taxi operators/transportation contractors (existing and new ones) are enjoined to acquire TIR system and/or model from BIR accredited suppliers/vendors and to install the same in their taxi units in accordance with the requirements of LTFRB Memorandum Circular Nos. 2003-010, 2003-020 and 2005-039.

Section 7. EFFECTIVITY. – These Regulations shall take effect after fifteen (15) days following publication in the Official Gazette or in a newspaper of general circulation.

(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue

REVENUE REGULATIONS NO. 16-2006

SUBJECT : Submission by Taxpayers of Electronic Books of Accounts and Other Accounting Records in the Course of a Tax Audit/Investigation

TO : All Internal Revenue Officers and Others Concerned
________________________________________________________________________

Background.

Section 5 (A) of the National Internal Revenue Code (NIRC) of 1997 provides:

“SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons. – In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:

(A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;

xxx xxx xxx “

This Section authorizes the Bureau of Internal Revenue (BIR) to examine the books and other accounting records of the taxpayer. The words “any book, paper, record, or other data” hereinmentioned would comprise both computerized and manual books of accounts and other accounting records. Thus, the BIR or its duly authorized Revenue Officers (ROs) may examine taxpayers’ computerized accounting books and records in the course of a tax audit or investigation pursuant thereto.

Moreover, Section 27 of RA No. 8792, otherwise known as the Electronic Commerce Act of 2000, mandates all government offices, including the Bureau of Internal Revenue ( BIR), to perform governmental functions using electronic documents. With the authority granted and the requirements prescribed under the two aforementioned laws, these Regulations are issued to lay down the policies, guidelines and procedures on the submission by taxpayers of books of accounts and other accounting records in electronic form specifying:

a. The manner and format in which such computerized accounting books/records shall be created, retained, filed and issued;

b. When and how such computerized accounting books/records have to be signed or authenticated;

c. The appropriate control processes and procedures to ensure integrity, security and confidentiality of computerized accounting books/records;

d. Other attributes required of computerized accounting books/records; and

e. The full or limited use of the documents and papers for compliance with the requirements of the BIR.

SECTION 1. Scope – Pursuant to the provisions of Section 244 in relation to Section 245 of the National Internal Revenue Code (NIRC) of 1997, these Regulations are hereby promulgated to prescribe the submission by registered computerized taxpayers of their books of accounts and other accounting records, in electronic form, during a tax audit or investigation, in accordance with the provisions of Sections 5 (A), 6 (A), 232 (A), 233, 235 and 237 of the NIRC of 1997 in relation to Section 27 of Republic Act (RA) No. 8792.

SECTION 2. Definition of Terms

2.1 Computerized Accounting Books/Records – refers to books of accounts and other accounting records in electronic form, such as electronic documents, transaction files, customer or vendor master files, and other files/databases maintained and used by a taxpayer in and under a computerized accounting system.

2.2 Electronic Document – refers to information or the representation of information, data, figures, symbols or other modes of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced electronically.

2.3 Electronic Signature – refers to any distinctive mark, characteristic and/or sound in electronic form, representing the identity of a person and attached to or logically associated with the electronic data message or electronic document or any methodology or procedures employed or adopted by a person and executed or adopted by such person with the intention of authenticating or approving an electronic data message or electronic document.

2.4 Media – refers to the physical forms of recorded information. This includes paper, film, computer disks, computer tapes, and any other materials on which information can be recorded.

2.5 CD-R (Compact Disc-Recordable) – an optical data storage written and read using lasers that can be read or viewed only but cannot be modified, deleted, or written over with new data. Recordable CDs are WORM (Write Once, Read Multiple). 2.6 DVD-R (Digital Video Disc- Recordable) – a new generation of optical disc storage technology which holds more data than the CD-R.

2.7 Database – refers to a stored collection of related electronic data used by organizations to meet their information processing requirements. It is normally associated with software to access and manipulate that data.

2.8 Data -a representation of information in a formalized manner suitable for communication, interpretation, or processing. Data consists of letters, numbers, or symbols.

2.9 File – a named collection of records stored or processed as an individual entity.

2.10 Records – a collection of related fields containing data items grouped for processing and considered sub-units of a file.

2.11 Field or data element– a specified area of a record used for storing a particular class of data. Fields are sub-units of a record.

2.12 Fixed length file – a file in which each record has the same number of characters. 2.13 File formats – a standard of organizing and storing the data in the file such that specific applications will be able to use the data. Common examples of file formats include -

a. Dbase File Format – a format typically created from personal computer-based databases and has a *.dbf file extension.

b. Delimited Format - a format composed of records in which the fields are not in a fixed position in the record. Instead, each field in the record is separated by a field separator character, such as a comma.

c. Flat File Format – a format wherein the data is stored in continuous lines of text similar to a Microsoft Word document that has been saved as “text only.” The records in flat file can be of fixed or variable length.

2.14 Authentication – a confirmation that the record is accurate, complete and appropriate to the actions taken. Methods of authenticating electronic records include authentication of a hard copy document that accompanies the electronic media, authentication of a label attached to the media, linking a digital signature to the electronic file/document and design of a unique location-specific procedure for authentication of electronic records.

SECTION 3. Examination of Computerized Books of Accounts and Other Accounting Records – The books of accounts and other accounting records, documents, schedules, and other information, submitted by a taxpayer in electronic form, collectively referred herein as computerized accounting books/records, may be examined by duly authorized Revenue Officers (ROs) and BIR officials in the course of a tax audit or investigation of the taxpayer, pursuant to Section 5 (A) of the NIRC of 1997.

At the time of examination, the retained computerized accounting books/records of the taxpayer must be capable of being retrieved from the computer system and converted to a standard format that would allow efficient examination and testing of such records using BIR audit tools during a tax examination, particularly in cases involving large volumes of transactions.

SECTION 4. Submission of Taxpayer Accounting Records in Electronic Form for BIR Examination – The books of accounts and other accounting records in electronic format that were submitted and registered with the concerned BIR office within thirty (30) days from the close of the taxable year pursuant to Revenue Memorandum Order (RMO) No. 29-2002 shall be provided to the BIR by the taxpayer upon audit/investigation. This does not preclude the BIR from requesting other transaction files which may contain information or transactions which occurred during the particular taxable year covered by the examination, which were not included in the original data submitted.

The required electronic or computerized accounting records should be submitted within the due date reflected on the document authorizing the audit(i.e. Letter of Authority, Audit Notice, etc).

The number of days within which the computerized accounting records have to be submitted shall not exceed five (5) days from receipt of the document authorizing the investigation.

If the taxpayer maintains accounting books and records in both electronic and manual (hardcopy) formats, the Revenue Officers auditing said taxpayers may require the presentation of both electronic and manual books/records. During verification process, the taxpayer is required to present the documents supporting the entries made in the Computerized Accounting System (CAS).

The computerized accounting books/records shall be submitted to the concerned Revenue Officers. Access to the computerized accounting books/records shall be restricted to the Revenue Officers assigned to handle the tax examination. After the report of investigation and the tax docket of the case has been reviewed and approved by the authorized Revenue Official, the Revenue Officers shall return to the taxpayer their computerized accounting books/records intact and in their original form. Nonetheless, if there are discrepancies found upon tax audit that results to tax assessments, the Revenue Officers/Examiners may request for certified true copies, in hard copy and/or electronic format, of the portion of the accounting books and pertinent accounting records that would serve as evidence or proof of the audit findings.


SECTION 5. Requirements for Submission of Accounting Books/Records in Electronic Format – The books of accounts and other accounting records, documents, schedules, files and other data or information that are required to be submitted by a taxpayer to the BIR under these regulations shall be those, but not limited to electronic books, reports, documents, files and data that had been produced using the computerized accounting system or components of a computerized accounting system that have previously been evaluated and approved by the Computerized Systems Evaluation Team (CSET), a team organized through RMO 29-2002 and shall be in electronic form, stored in recordable compact discs (CD-R), digital video discs (DVDR) or other optical media, depending on the volume of the transactions or size of the business, and in a format that is readable by the BIR audit tools, as specified in the letter request for submission of data, e.g. in fixed length flat text, delimited or dBase format.

The CD-Rs, DVD-Rs or other optical media should be properly labeled with the name of taxpayer, taxable year, content description, serial number, volume number and such other information required under RMO No. 29-2002 and its amendatory issuances. To ensure that authorized users can identify, access and retrieve information stored on CDs, DVDs or other optical media, their external labels should, likewise, indicate the application system/software, including the version number of the application system/software used to create their contents.

These should also be accompanied by a document describing the file attributes or layout, that is, the number of records in each data file; the control totals for each numeric field, where applicable; the record layouts and record lengths; and the documentation of key control information, including the transaction cutoff date and time.

A duly notarized certification in the form of an affidavit shall be executed by the taxpayer or his authorized representative, attesting the completeness, accuracy and appropriateness of the computerized accounting books/records, in accordance with the keeping of books of accounts and records for internal revenue tax purposes, and should be submitted together with the accounting books, records, etc., in electronic form. The CDs, DVDs or other optical media should also be properly authenticated and its label duly signed by the responsible official(s) of the company who are required to sign the tax returns under the Tax Code, using a permanent marker. The taxpayer may require the Revenue Officer to acknowledge receipt of the electronic files and documents.

The notarized certification shall be submitted in hard copy, as currently, legal documents are not yet prepared electronically in the Philippines. However, whenever this facility becomes available and acceptable in the country, notarized certification in electronic form may be allowed and submitted.

For the proper understanding of the taxpayer’s business processes that were used to create and maintain the computerized accounting books and records, the taxpayer under investigation is required to provide the concerned Revenue Officers with an overview of the computerized accounting systems used during the taxable period under audit. It is understood that the computerized accounting system used or being used by the taxpayer has been previously approved by the BIR. In relation hereto, any subsequent change or enhancement to such computerized accounting system shall require approval of the BIR.

SECTION 6. Retention of Electronic Documents and Electronic Files – Pursuant to Section 13 of RA No. 8792, the books of accounts and other accounting records, documents, files, schedules and other information submitted by a taxpayer to the BIR in electronic form should be retained in their original form and:

a.) Remain accessible so as to be usable for subsequent reference; and

b.) Retained in the format in which it was generated, sent or received, or in a format which can be demonstrated to accurately represent the electronic document generated, sent or received.

The aforementioned books/records shall be retained in accordance with the rules on preservation of books of accounts and other accounting records provided in Section 235 in relation to Sections 203 and 222 of the NIRC of 1997.

SECTION 7. Legal Recognition of Electronic Document – In relation to Section 7 of RA No. 8792, electronic documents submitted for purposes of a tax audit or investigation shall have the legal effect, validity or enforceability as any other document or legal writing subject to the following conditions:

a. If an electronic document is able to maintain its integrity and reliability through time and can be authenticated for subsequent reference, in that –

1. The electronic document has remained complete and unaltered, apart from the addition of any endorsement and any authorized change, or any change which arises in the normal course of communication, storage and display; and

2. The electronic document can be relied upon for the purpose for which it was generated and for all the relevant circumstances.

b. If an electronic document has been presented or retained in its original form, in that -

1. There exists a reliable assurance on the integrity of the document from the time when it was first generated in its final form; and

2. That document is capable of being displayed to the person to whom it is to be presented.

Under existing laws and these regulations, an electronic document shall be the functional equivalent of a written document for evidentiary purposes.

SECTION 8. Compliance Enforcement – In instances where the taxpayer fails to comply with the provisions of these Regulations, the procedures prescribed in the issuance and enforcement of Subpoena Duces Tecum shall be followed.

SECTION 9. Penalty Clause – Any violation of the provisions of these Regulations shall be subject to the penalties provided for under the pertinent provisions of the NIRC.

SECTION 10. Repealing Clause – All existing revenue regulations and other issuances or portions thereof that are inconsistent herewith are hereby revoked, repealed or amended accordingly.

SECTION 11. Effectivity Clause – These Regulations shall take effect after fifteen (15) days following its publication in any newspaper of general circulation.

(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
I-1

REVENUE REGULATIONS NO. 15-2006

NOTE: Amended in RR 3-2007

SUBJECT : Implementing a One-Time Administrative Abatement of all Penalties/Surcharges and Interest on Delinquent Accounts and Assessments (Preliminary or Final, Disputed or Not) as of June 30, 2006.

TO : All Internal Revenue Officers and Others Concerned

SECTION 1. PURPOSE. – These regulations prescribe the guidelines for the availment by taxpayers of the opportunity to settle their delinquent accounts or assessments, preliminary and final, disputed or not, by way of application for abatement of all penalties, including surcharge and interest, under Section 204 of the National Internal Revenue Code (NIRC) of 1997 as another step towards the collection and reduction of the Bureau’s Accounts Receivables and pending assessments.

SECTION 2. COVERAGE - The following cases shall be covered hereof:

a.) Delinquent Accounts/Accounts Receivable Cases except those cases where the Presidential Commission on Good Government (PCGG) has an interest and/or there is a need to coordinate with the PCGG;

b.) Income Tax 2nd Installment Cases;

c.) Dishonored Checks Cases;

d.) Cases with administrative protest pending in the Regional Office, Revenue District Office, Legal Service, Large Taxpayer’s Service (LTS), Collection Service, Enforcement Service and other Offices in the National Office except those cases where the Presidential Commission on Good Government (PCGG) has an interest and/or there is a need to coordinate with the PCGG;

e.) Assessed cases, whether preliminary or final, as of June 30, 2006 except those cases where the Presidential Commission on Good Government (PCGG) has an interest and/or there is a need to coordinate with the PCGG;

f.) Civil tax cases being disputed before the Department of Justice and the courts, e.g., MTC, RTC, CTA, CA and SC including decided cases which are not yet final and executory except those cases where the Presidential Commission on Good Government (PCGG) has an interest and/or there is a need to coordinate with the PCGG;

g.) Collection Cases filed with the Courts except those cases where the Presidential Commission on Good Government (PCGG) has an interest and/or there is a need to coordinate with the PCGG;

h.) Cases with pending request for Compromise Settlement under RR No. 6-2000, RR No. 7-2001, and RR No. 30-2002, as amended by RR No. 8-2004, and other prior years’ issuances which are under evaluation by the TWG-NEB, TWG-REB, NEB and REB; provided that, pending requests for compromise settlement pursuant to the aforementioned RRs where the amounts offered have already been approved or where partial or full payments have already been made shall not be covered by these Regulations;

i.) Cases with pending request for abatement under RR 13-2001 for evaluation by the Commissioner of Internal Revenue (CIR) or his authorized representative; provided that, pending requests for abatement pursuant to the aforementioned RR, where the amounts offered have already been approved or where partial or full payments have already been made shall not be covered by these Regulations;

j.) Failure to withhold Withholding Taxes discovered upon audit;

k.) Criminal violations (except those already filed in Court, those involving Criminal Tax Fraud, those under the Rate Program of the Bureau, and tax fraud cases which are the results of confidential information, unless allowed to avail by the Commissioner or his representative on meritorious grounds);

l.) Letter Notice Cases;

m.) “Accounts Payable or Due to BIR” account duly recorded or acknowledged by the taxpayer in his books of accounts.

SECTION 3. DEFINITION OF TERMS – In applying the provisions of these regulations, the following terms shall be defined as follows:

a.) Delinquent Account – refers to the amount of tax due on or before June 30, 2006 from a taxpayer who failed to pay the same within the time prescribed for its payment, arising from (1) a self-assessed tax, or (2) a deficiency assessment issued which has become final and executory;

b.) Assessment, preliminary or final, disputed or not, – refers to a tax assessment issued or self assessment made on or before June 30, 2006 which has not yet become final and executory;

c.) Basic Tax Assessed – The term refers to any of the following:

1.) Unpaid tax shown on the return filed;

2.) Tax due shown on the Assessment Notice and Letter of Demand, excluding surcharge and interest;

3.) Unpaid 2nd Installment Income Tax;

4.) Amount of Dishonored Check.

SECTION 4. WHO MAY AVAIL. – Any person/taxpayer, natural or juridical, may settle thru this abatement program any delinquent account or assessment which has been released as of June 30, 2006, by paying an amount equal to One Hundred Percent (100%) of the Basic Tax assessed with the Accredited Agent Bank (AAB) of the Revenue District Office (RDO)/Large Taxpayers Service (LTS)/Large Taxpayers District Office (LTDO) that has jurisdiction over the taxpayer. In the absence of an AAB, payment may be made with the Revenue Collection Officer/Deputized Treasurer of the RDO that has jurisdiction over the taxpayer. After payment of the basic tax, the assessment for penalties/surcharge and interest shall be cancelled by the concerned BIR Office following existing rules and procedures. Thereafter, the docket of the case shall be forwarded to the Office of the Commissioner, thru the Deputy Commissioner for Operations Group, for issuance of Termination Letter.

Provided, however, that this ABATEMENT PROGRAM shall not be available to taxpayers who may have already paid any portion of increments (surcharge, interest, etc.) on their tax liabilities, and to tax cases on which the Presidential Commission on Good Government has an interest.

SECTION 5. PLACE FOR FILING APPLICATION FOR ABATEMENT OF PENALTIES AND INTEREST. – All applications shall be filed, accepted and processed with the following offices:

a.) Revenue District Office – For Regional Office Cases under its jurisdiction;

b.) Assessment Division – For Regional Office Cases with administrative protest;

c.) Legal Division – For Regional Office Cases with judicial protest or for judicial action or with administrative protest involving legal issues;

d.) Collection Service – For Delinquent Accounts under the jurisdiction of the national office other than LTS Cases;

e.) Large Taxpayers Service (LTS) – For Large Taxpayers Cases under the jurisdiction of the Large Taxpayers Service;

f.) Legal Service – For National Office Cases that are for judicial action or with judicial protest and/or administrative protest involving legal issue;

g.) Enforcement Service – for tax cases handled by the National Investigation Division of the National Office.

Notwithstanding the above provisions, the Office which has possession of the docket of the case shall receive and process applications for abatement of penalties/surcharge and interest on delinquent accounts and assessed tax cases.

SECTION 6. MODE OF PAYMENT. – Upon filing of the application for/acceptance of the offer to avail of the Abatement Program, the amount offered in complete settlement of the delinquent account/assessed tax cases shall be paid with the Authorized Agent Banks (AABs) located within the jurisdiction of the RDO/LTS/LTDO where the taxpayer is registered. In the absence of AABs, the payment may be made to the Revenue Collection Officer/Deputized Treasurer of the City/Municipality of the RDO/LTDO that has jurisdiction over the taxpayer.

Staggered payments of the amounts payable under this Abatement Program may be considered on a case to case basis in accordance with the existing regulations of the Bureau upon approval of the Regional Director for regional cases, and concerned ACIR (LTS, Collection, Legal, or Enforcement) for National Office cases. Nonetheless, cases pending in courts shall not be withdrawn unless the concerned taxpayer shall fully pay one hundred percent (100%) of the basic tax.

If the amount, as abated, is not paid as required herein, the approved staggered payment is automatically nullified and the delinquent account or the assessment shall be reverted to the original amount which includes the statutory increments incident to delinquency, which shall be collected thru the summary remedies and/or judicial processes provided for by law.

SECTION 7. EFFECTIVITY. – These regulations shall take effect after fifteen (15) days following publication in any newspaper of general circulation and shall remain in force until October 31, 2006 subject to extension by the Commissioner of Internal Revenue on meritorious grounds.

(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue

REVENUE REGULATIONS NO. 14-2006

SUBJECT : Providing for the Revised Implementing Rules for Executive Order No. 399 (EO 399) As Amended by Executive Order No. 422 (EO 422) Directing the Bureau of Internal Revenue to Establish the "No Audit Program" (NAP) for the Purpose of Enhancing Tax Compliance and Increasing Tax Collections with Extension of the Deadline for Availment Thereof

TO : All Internal Revenue Officials, Employees and Others Concerned

BACKGROUND

On January 17, 2005, her Excellency Gloria Macapagal-Arroyo issued Executive Order No. 399 (EO 399), which seeks to encourage taxpayers to voluntarily declare and pay higher taxes thereby reducing administrative costs that are entailed from audit and investigations conducted by the Bureau of Internal Revenue (BIR). On April 26, 2005, Executive Order 399 was further amended and enhanced with the issuance of EO 422.

SECTION 1. SCOPE. — Pursuant to Section 6 and Section 244 of the National Internal Revenue Code of 1997 in relation to EO 399, as amended, these regulations are hereby promulgated to prescribe the policies and guidelines for the No Audit Program (NAP). Taxpayers who qualify under the "No Audit Program", shall be exempted from audit and/or investigation for the period for which they qualify. The NAP shall be in force for taxable years 2004, 2005, 2006, 2007 and 2008.

SECTION 2. DEFINITIONS. —

(a) Base Year — refers to the taxable year immediately prior to the Current Taxable Year. To determine whether a taxpayer has qualified for the NAP for Taxable Year 2004, the Base Year on which the growth rate shall be imposed shall be Taxable Year 2003.

(b) Current Taxable Year — refers to the taxable year for which qualification under the NAP is sought.

(c) Taxable Year — refers to any 12-month period starting on any date from August 1, 2003.

Illustration:

For taxpayers who are on a fiscal year basis, if his accounting period starts on August 1, 2003, then returns filed for said period are considered returns for taxable year 2004.

(d) Taxpayer – refers to any person whether individual or corporation earning
business income.

SECTION 3. COVERAGE. — Any taxpayer registered with the BIR and who has actually filed and paid income taxes and business taxes for taxable year 2003 may participate in the NAP. If a taxpayer fails to participate and qualify for taxable year 2004, he shall no longer be allowed to participate for any year thereafter unless his business was established after year 2004. If a taxpayer who participates in the NAP for a Taxable Year shall fail to qualify for the NAP for any subsequent Taxable Year, he shall be disqualified from further participating in the NAP.

Illustration:

Taxpayer A has been registered as a taxpayer with the BIR since 1990. In order to be qualified to participate in the NAP, he must have all the qualifications required under Section 5 for taxable year 2004. If he satisfies all the requirements for qualification, he shall enjoy the benefit of exemption from audit and/or investigation for taxable year 2004.

If Taxpayer A fails to participate or does not qualify for the NAP for taxable year 2005, his benefit of exemption from audit and/or investigation for taxable year 2004 shall continue. However, he can no longer participate in the NAP for the remaining duration of the program, i.e., for taxable years 2005, 2006, 2007, and 2008.

A taxpayer who commences business operations and registers with the BIR at anytime after the effectivity of these Regulations may apply for qualification under NAP on the subsequent Taxable Year from the taxable year when he commenced business operations and registration with the BIR. Provided, however, that if he fails to participate and qualify on the taxable year subsequent to the taxable year he commenced business operations, he shall be disqualified from further participating in the program.

Illustration:
Taxpayer A started his business in 2004. He must participate and
qualify for Taxable Year 2005, otherwise, he is barred from participating
in the NAP.

SECTION 4. TAXPAYER'S BENEFITS. — Taxpayers who qualify under the terms and conditions prescribed herein shall be exempted from audit and/or investigation of his tax liabilities, except Overseas Communication Tax and all forms of withholding taxes, for that particular Taxable Year for which he qualifies.

SECTION 5. CRITERIA FOR QUALIFICATION TO THE PROGRAM. -

For taxpayers to qualify for the NAP he must satisfy all of the following:

a. income tax due/tax payment for the Current Taxable Year must exceed the income tax payment for the Base Year by at least Thirty percent (30%);

b. ratio of income tax payment to gross sales/receipts for the Current Taxable Year must be at least equal to that of the Base Year;

For taxpayers earning mixed income (business income and employment income), the computation of the 30% increase in the income tax payment and the ratio of income tax payment to gross sales must be based on the tax paid and income by the taxpayer from his business only by simulating tax payment on business income using the lowest tax rate as the starting rate in computing the tax thereon. Thus, the increase/decrease in the compensation income and its corresponding effect on the tax due for the current taxable year shall be excluded for purposes of computing the compliance with the required increase in income tax payment and the ratio of tax payment to gross sales/receipts.

Illustration:

Mr. X, single, dealer of automobile parts, reported the following items of income and taxes paid





2003

2004

Gross compensation income

550,000.00

750,000.00

Gross sales

1,200,000.00

1,500,000.00

Taxable compensation income

530,000.00

730,000.00

Taxable business income

280,000.00

320,000.00

Income tax due/paid

224,200.00

301,000.00

Income tax due from business

59,000.00

71,000.00

VAT due/paid

20,000.00

30,000.00

For purposes of availing NAP, how much will Mr. X pay in order to qualify?

1. Compute for the increase in tax payment for the current year vs. base year

a. Income tax

Tax paid for the current year........

71,000.00

Less: tax paid for the base year.....

59,000.00

Increase in tax payment..............

12,000.00

Divide: tax paid-base year...........

59,000.00

Percentage of increase..................

20%



b. VAT

VAT paid for the current year........

30,000.00

Less: VAT paid for the base year.....

20,000.00

Increase in VAT payment..............

10,000.00

Divide: VAT paid-base year...........

20,000.00

Percentage of increase..................

50%

2. Compare the ratio of tax paid to gross sales for the base year vs. current year


a. Income tax


2003

2004

Gross sales.............................

1,200,000.00

1,500,000.00

Income tax due/paid from business..........

59,000.00

71,000.00

Income tax payment ratio.....................

4.92%

4.73%

b. VAT


2003

2004

Gross sales............................

1,200,000.00

1,500,000.00

VAT due/paid..............................

20,000.00

30,000.00

Ratio of VAT/Percentage tax..................

1.67%

2.00%


3. Amount to be paid to qualify for NAP

a. Income tax

i. Required 30% increase in tax payment for the current year

Income tax paid – base year..............

59,000.00

Required increase.........................

130%

Tax to be paid for the current year......

76,700.00


ii. Required ratio for the current year, at least equal to base year

Gross sales – current year............

1,500,000.00

Ratio from base year.......................

4.92%

Tax to be paid for current year..........

73,800.00


b. VAT – Required 30% VAT payment

Gross sales – current year.............

1,500,000.00

Required tax rate............................

30%

VAT to be paid for the current year.......

45,000.00


4. Required additional payment

a. Income tax

Income tax required to be paid............

76,700.00

Less: income tax paid per return..........

71,000.00

Additional income tax to be paid...........

5,700.00


b. VAT

VAT required to be paid..................

45,000.00

Less: VAT paid per return................

30,000.00

Additional VAT to be paid................

15,000.00


Taxpayers who paid or are paying the Minimum Corporate Income Tax (MCIT) can still avail of the NAP provided that the required increase in the income tax payment and the ratio of tax payment to gross sales/receipts shall be based on the MCIT due in the base year and the MCIT due in the current year. Further, excess MCIT shall not be credited from the succeeding year’s tax due, even if the normal income tax becomes higher than the MCIT.

Deferred Charges-MCIT for the current year must be closed to retained earnings account. Taxpayers enjoying the benefit of the preferential tax rates (not subject to the Normal Income Tax Rate) can still avail of the program provided that the required increase in the income tax payment and the ratio of income tax payment to gross sales/receipts as stated in letters (a) and (b) hereof are complied and shall be based on the tax due computed applying the preferential tax rate for the base year and the current year. The same rule applies, even if the taxpayer’s current year is no longer entitled to the application of the preferential tax rate.

c. ratio of net VAT or business tax actually paid to gross sales/receipts for the Current Taxable Year must be at least equal to that of the Base Year, provided, however, that in no case shall it be less than five (5%) percent for financial institutions and (4%) for other percentage taxpayers, or thirty percent (30%) for seller of goods and fifty percent (50%) for seller of services of the Value-Added tax rate provided by law for any given period for those subject to value added tax, or the industry benchmark as may be determined from time to time by the Commissioner of Internal Revenue (Commissioner).

Provided however, that starting January 1, 2006, transactions with the government shall be excluded for the purpose of computing the herein minimum VAT ratio.

VAT zero-rated transactions and VAT exempt transactions and transactions not subject to percentage tax, shall not be considered for purposes of determining compliance with the required VAT or percentage tax ratio. Provided, however, that the gross sales/receipts from the aforesaid transactions are included for purposes of qualifying with the requirements of letters (a) and ( b) of this section.

Taxpayers having purely VAT zero-rated transactions or VAT exempt transactions and transactions not subject to percentage tax, shall not be required to comply with letter (c) and shall be deemed qualified for said exemption provided that the requirements of letters (a) and (b) of this section are complied with. Provided, further, that photocopies of the required documents included in the NAP Participation Form (BIR Form No. 2114 April 2006 Version) shall be presented for validation of their business tax type/s.

To qualify for the NAP, taxpayer subject to VAT in 2003 and to Gross Receipts Tax in 2004, shall comply with the criteria stated in Sec. 5 (a) and( b) hereof and the business tax actually paid in 2004 shall not be less than five percent (5%) of the gross receipts.

For purposes of determining the tax payments for the Current Taxable Year, only taxes actually paid in cash as shown in the Annual Income Tax Return, Quarterly Income Tax Return, Quarterly Value Added Tax Return, Monthly Value Added Tax Declaration and Quarterly and Monthly Percentage Tax Return shall be considered. For this purpose, creditable withholding taxes for the taxable year concerned, which are properly supported by Certificates of Creditable Tax Withheld at Source (BIR Form 2307) shall be considered as cash payments. On the other hand, TCCs/TDMs, and tax credit carried over from prior years are considered non-cash items and shall be excluded in determining the tax payments for the Current Taxable Year.

However, for purposes of determining tax payments for the Base Year on which the increase in tax payments and ratio required to qualify for the NAP shall be measured, the total amount of tax due for the Base Year shall be included regardless of the mode of payment, i.e., whether paid in cash, creditable withholding tax, TCCs/TDMs, or tax credit carried over from prior taxable years.

In the event the taxpayer was not in operation for the whole period of the Base Year, the tax payments for that period shall be annualized, and such annualized tax payments shall be used as the tax payment of the Base Year on which the growth and ratio required shall be computed.
Illustration:

Taxpayer A, who is on calendar year basis of accounting, started his business on July 1, 2003, and paid income tax amounting to P60,000.00. For purposes of computing his tax payment for the Base Year 2003, his total income tax payment shall be divided by the number of month he is in operation and then multiplied by 12 months. In this case, his annualized income tax payment for 2003, is P60,000/6 x 12 months, or P120,000.00.

Provided, further, that the growth rate and ratio provided herein shall be adjusted to reflect the effect of the increase/decrease of the tax rate resulting from legislative measures. These growth rate and ratio shall be determined by the Commissioner for every NAP participation year which shall be released through a Revenue Memorandum Circular to be issued before the deadline for filing of NAP Participation Form on a yearly basis.

In the event a taxpayer shall have been issued an assessment that has become final and executory relating to tax payments for a Base Year, the tax payment for the Base Year shall be adjusted with an additional amount corresponding to the assessment of the basic tax.

In case the taxpayer amends his tax and information returns for any Base Year, the higher of the original amount and the amended amount shall be used as the tax payment for the Base Year for purposes of this section.

SECTION 6. TAXPAYERS NOT QUALIFIED FOR THE PROGRAM. - Taxpayers who are reporting net loss or have a Net Operating Loss Carry-over without MCIT due shall be disqualified from participating in the NAP. This includes taxpayers having net income but having no tax payable due to their deduction of personal and additional exemptions.

SECTION 7. RESERVATION OF THE POWER TO AUDIT. —The provision of Section 4 of these Regulations notwithstanding, the Commissioner shall have the right to audit a taxpayer who falls in any of the following circumstances:

a. Those to whom Letter Notices have been issued, which were not disputed and which remains outstanding on the date the taxpayer filed the application required under these Regulations;

b. Those to whom Letter Notices may be issued by the Commissioner himself in the future as a result of information obtained from third party or from information filed by the taxpayer himself where there appears a discrepancy in his tax payment;

c. Tax cases covered by a Letter of Authority arising from confidential information filed.

d. Those who shall fail to file all the required information returns or do not provide all the information/data required in the information returns filed.

SECTION 8. PROCEDURES FOR AVAILMENT. — The Commissioner of Internal Revenue shall issue the necessary revenue memorandum order/circular and/or any appropriate revenue issuances for the effective and efficient implementation of the NAP.

SECTION 9. DEADLINE. — A taxpayer must file a duly accomplished NAP Participation Form, together with the required attachments, not later than thirty (30) days from the statutory deadline for the filing of Annual Income Tax Return for the year subject of the Participation, or in the case of taxpayers whose statutory deadline for the filing of Annual Income Tax Returns occurred earlier than the date of the effectivity of these Regulations, their applications must be filed within thirty (30) days from the effectivity hereof.

However, for taxpayers whose taxable year ends on December 31, 2005 and fiscal years ending in January, February, March, or April 2006, the NAP Participation Form must be filed together with the required attachments, on or before October 1, 2006, subject to extension by the Commissioner, on meritorious grounds.

All returns and payments made by a taxpayer who applied to participate in the NAP are deemed final and conclusive, and by applying to participate in the NAP, the taxpayer shall be deemed to have waived all of his rights to claim any refund pertaining thereto.

Only taxpayers whose annual income tax returns were not amended may apply to participate in the NAP. In the event the amount of taxes paid shall not be sufficient to qualify a taxpayer for the NAP, he may still qualify by making a voluntary payment in amount not less than the deficiency required for him to qualify. Provided, that said payment shall be non-refundable nor deductible against his income. Provided, further that said voluntary payment shall form part of the base of the tax year to which it pertains, for purposes of determining his qualification for NAP in the subsequent taxable year.

Taxpayers who failed to avail and qualify for 2004 NAP availment can still avail of the Program under these Regulations by complying with the requirements herein provided; Provided, however, that neither a Final Assessment Notice nor a Letter Notice for taxable year 2004 has been issued on the date of the availment, subject to the conditions stated under Sec. 7 hereof. Additional payments, if any, must be made using BIR Form 06015-101 and NAP Participation Form must be filed not later than October 1, 2006.

SECTION 10. ISSUANCE OF CERTIFICATE OF EXEMPTION FROM AUDIT/INVESTIGATION OR NOTICE OF DISQUALIFICATION. - The application and the required attachments shall be reviewed by the NAP Review Committee composed of the following:

A. Regional Level
Head : Assistant Regional Director
Members:
1. Revenue District Officer where taxpayer is registered, or his representative
2. Chief, Assessment Division
3. Chief, Legal Division

B. Large Taxpayers
Head : HREA (Regular/Excise)
Members:
1. Chief, LTAID I / LTAID II /, LTDO where taxpayer is registered, or his representative
2. Chief, LTCED
3. Head, Audit Review Unit

The NAP Review Committee shall recommend the issuance of a Certificate of Exemption from Audit/Investigation or Notice of Disqualification which shall be signed by the Regional Director, for regional office cases, or the Assistant Commissioner, Large Taxpayers Service, for large taxpayers’ cases. The Notice of Disqualification shall always mention the reason for the disqualification Any unpaid amount found after review by the NAP Review Committee shall be paid within thirty (30) days from receipt by the taxpayer of the written notification from the RDO or Chief of concerned Large Taxpayers Division/District Office; otherwise, the taxpayer’s availment shall be invalidated.

SECTION 11. APPEAL. - Taxpayers who received a Notice of Disqualification may file an appeal to the NAP Committee- National Office Level within 30 (thirty) days from receipt thereof. The composition, functions, duties and responsibilities of the NAP Committee-National Office Level shall be provided through a Revenue Special Order to be issued by the Commissioner for that purpose.

SECTION 12. TRANSITORY PROVISION. - The increase in growth rate and in ratio herein stated shall apply to taxpayers whose application will be filed after July 31, 2006.

10 SECTION 13. REPEALING CLAUSE. – All existing revenue issuances or portions thereof inconsistent herewith are hereby amended, repealed or modified accordingly

SECTION 14. EFFECTIVITY CLAUSE. - These Regulations shall take effect after fifteen (15) days following publication in any newspaper of general circulation.

(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUNAG
Commissioner of Internal Revenue