BIR revamps individual ITR forms

As we get closer to the April 15 deadline, taxpayers should be wary of changes in the preparation and filing of annual income tax returns (ITR).

On Jan. 24, 2014, the BIR issued Revenue Regulations (RR) No. 2-2014 which revamped the forms to be used by individual taxpayers for the filing of ITR for taxable year 2013. Individual taxpayers who have already filed their 2013 ITRs using the old form are mandated to re-file their ITRs using the new form.

While BIR Form 1700 remains the ITR form for individuals earning purely compensation income and BIR Form 1701 remains the ITR form for self-employed individuals, estates and trusts, significant changes have been introduced in these forms to enhance the filing of the returns and the database management of the BIR.

A visible change on each page of the new BIR forms is the presence of a bar code. Moreover, the entries are readable by an optical character reader by mere scanning. The new forms require the taxpayer identification number (TIN) and the taxpayer’s last name to be indicated on all subsequent pages of the return, as opposed to the old returns requiring such information only on the first page. This reduces the risk of pages being switched with other returns. Understandably, this new feature will be an added safeguard to the integrity of the returns filed.

Of particular interest is the provision in RR No. 2-2014 which requires the following individual taxpayers to use only the itemized deduction:

Those exempt under the Tax Code, as amended, and other special laws with no other taxable income;

Those with income subject to special/preferential tax rates; and

Those with income subject to income tax rate under Section 24 of the Tax Code, as amended, and also with income subject to special/preferential tax rates.

According to Section 5 of the RR, the above-mentioned taxpayers are not entitled to avail of the optional standard deduction (OSD). The BIR may need to clarify this limitation as this is not contained in the Tax Code. Quite the contrary, Section 34(L) provides that an individual subject to tax under Section 24 of the Tax Code, other than a nonresident alien, may elect a standard deduction in an amount not exceeding 40% of his gross sales or gross receipts, as the case may be.

The new forms include the supplemental information page. However, BIR issued Revenue Memorandum Circular (RMC) 9-2014 stating that the disclosure of supplemental information in BIR Form No. 1700 and 1701 shall be optional for income tax filing covering and starting with calendar year 2013 (due for filing on or before April 15, 2014). Said disclosure will be mandatory covering and starting calendar year 2014 (due for filing on or before April 15, 2015).

Additionally, RMC No. 9-2014 gave individual taxpayers the option to use one of the following: (a) their community tax certificate, (b) passport, or (c) driver’s license for purposes of identification. Only the community tax certificate is accepted in the old individual ITR forms.

The new ITR forms are released only in PDF format. According to the BIR, no Excel or Word format will be released to ensure that fields will not be altered, resized or modified, and not being recognized by their machine. According to the BIR, interactive PDF forms will be created to automate calculations, facilitate the generation of returns, and possibly reduce human error.

Aside from aesthetic transformation, other changes introduced in the new forms include the elimination of centavos in the ITR. Centavos are dropped if the amount is P0.49 or less, and rounded up to the nearest peso if the amount is P0.50 or more. For BIR Form 1700, the “details of payment” options include only cash or check payment, thereby removing the option to pay through debit memos and other modes. For BIR Form 1701, the options include cash, check or cash/bank debit memo, but tax debit memo and other modes have been removed. Another new section in BIR Form 1701 is the balance sheet, which provides specific line items to be filled up.

Along with the introduction of new ITR forms, the BIR should provide guidance on how to properly accomplish the new ITRs. Otherwise, expect chaos and confusion to ensue this tax filing season.

Christy Irene D. Enrile is an assistant manager from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-kpmgmla@kpmg.com or rgmanabat@kpmg.com. –Christy Irene D. Enrile (The Philippine Star)

For more information on KPMG in the Philippines, you may visit www.kpmg.com.ph.