Tax filing reminders for self-employed individuals

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JOEM CRUZ

JOEM CRUZ

The summer break is upon us, and while most people are busy planning their summer outings, others are preoccupied with audit engagements in anticipation of the April 15 tax deadline. For self-employed individuals, below are some reminders relative to the submission of the Philippine Annual Income Tax Returns (ITR) for taxable year 2015.

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Under the Philippine Tax Code, resident citizens are subject to tax on income earned within and outside the Philippines. On the other hand, nonresident citizens, resident aliens and nonresident aliens are subject to tax on income earned within the Philippines.

For citizens, resident aliens, and nonresident aliens engaged in trade or business in the Philippines, the graduated tax rate of 5 percent to 32 percent shall apply. Further, individuals other than those earning compensation income arising from personal services rendered under an employer-employee relationship shall be allowed deductions from gross income pursuant to Section 34 of the Philippine Tax Code.

Through the issuance of Revenue Regulations (RR) No. 16-2008, resident citizens, nonresident citizens, and resident aliens may be allowed to claim the Optional Standard Deduction (OSD) in lieu of the itemized deduction. The OSD allowed to individual taxpayers shall be a maximum of 40 percent of gross sales or gross receipts during the taxable year. It was also emphasized in the aforesaid regulation that the “cost of sales” in the case of an individual seller of goods, or the “cost of services” in the case of an individual seller of services, is not allowed to be deducted for purposes of determining the basis of the OSD.

In addition, taxpayers who elect to avail of the OSD are required to check the appropriate box in the income tax return filed for the first quarter of the taxable year. Once the election is made, the same type of deduction must be consistently applied for all the succeeding quarterly returns and in the final income tax return for the taxable year.

Under the tax filing system in the Philippines, individuals who are engaged in trade/business or practice of profession, including those earning mixed income, are required to file and pay their income tax using BIR Form No. 1701.

With regard to the method of filing the BIR Form No. 1701, there are three avenues available for filing the return: 1) electronic Filing and Payment System (eFPS); 2) electronic BIR Forms (eBIRForms); and 3) manual filing.

Revenue Memorandum Circular (RMC) 19-2015 dated April 13, 2015 reiterates the taxpayers who are mandated to use the eFPS and eBIRForms in filing their respective tax returns. Moreover, taxpayers other than those enumerated in the aforesaid issuance may file using existing manual procedures but are encouraged to use the eBIRForms.

Taxpayers who are enrolled and activated in eFPS should follow steps 1 to 4 below. The taxpayer will then be prompted to log in to the eFPS portal and follow the existing steps in submitting the tax returns through the eFPS.

Taxpayers mandated or who opted to use the eBIRForm shall 1) download the latest version of the Offline eBIRForms Package; 2) fill out the ITR; 3) validate the ITR; 4) click submit to online eBIRForms and select “Submit/Final Copy”. The system will then automatically send an e-mail to the BIR and the taxpayer shall receive a notification that the return has been successfully filed.

RMC 25-2016, which was issued on 22 March 2016, announced the availability of version 6.0 of the Offline eBIRForms Package. This version is available for downloading through these websites: www.knowyourtaxes.ph; www.dof.gov.ph; http://goo.gl/UCr8XS; http://ftp.pregi.net/bir/ebirforms_package_v6.0.zip; or www.bir.gov.ph.

Similar to eFPS filers, taxpayers using the eBIRForms shall also submit the accompanying schedules and manual attachments (i.e., Financial Statements, Statement of Management Responsibility, DVD-R with sworn declaration) within 15 days after they have accomplished the electronic filing of their return at the concerned LT Office/RDO where they are registered.

Manual filers should print their return, encoded using the eBIRForm offline package, and manually file and pay the return through Authorized Agent Banks (AABs), or the collection agents (in proper cases) of their respective RDOs.

Last year’s tax filing season left most taxpayers confused and somewhat disappointed because the Bureau issued a number of guidelines and clarifications within the two-week period prior to the filing deadline – the BIR released about six circulars during this period alone. Let’s hope that this year, the BIR will be able to issue a comprehensive guideline for taxpayers.

The author is an Assistant Tax Manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member firm of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

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3 Comments

  1. rachel espinosa on

    Hi,

    Used ITR1701 for individual due to mixed income.. should it be filed thru eBIRForms?

  2. What if my expenses exceeds the gross income plus my personal exemption? I was told to file online but i’m not enrolled at efps. Where and how do i file without being penalized?

  3. gracelyn bellingan on

    Hi Ms. Joem Cruz,

    I’m quite confused in this section of your article:
    “In addition, taxpayers who elect to avail of the OSD are required to check the appropriate box in the income tax return filed for the first quarter of the taxable year. Once the election is made, the same type of deduction must be consistently applied for all the succeeding quarterly returns and in the final income tax return for the taxable year.”

    Does the above means that the taxpayer should already make a decision to use either the itemized or OSD from the very first quarter he files his tax return? Because my interpretation on revenue regulation 16-2008, Sec. 7, to wit:

    “In the filing of the quarterly income tax return, the taxpayer may opt to use either the itemized deduction or OSD. However, in filing the final adjustment income tax return, the taxpayer must make a choice as to what method of deduction it or he shall employ for the purpose of determining it/his taxable net income for the entire year. The taxpayer is, thus, not allowed to use a hybrid method of claiming it/his deduction for one taxable year.”

    is that a taxpayer may opt to use either the itemized deduction or OSD in any of the quarters but should however, make only one choice of deduction method when he files his final adjustment income tax return.

    Hope you can enlighten me on this matter. Thank you very much.