Re-examining Supplemental Information requirement

MOST of us are being kept busy by two things—the First Quarter operations report and the tax filing deadline on April 15. And this being the Philippines, we’ll also be engrossed watching and listening to the candidates campaigning for their respective positions.

Thus, it is understandable that only a few have given attention to the additional information being required of individual taxpayers for their Income Tax Return for calendar year 2015.

The Bureau of Internal Revenue (BIR) first required individual taxpayers to report supplemental information in 2011.

It accomplished this by simply amending the annual individual tax return (ITR) forms for individuals receiving purely compensation income (Form 1700) and the self-employed (Form 1701) to add a section for the taxpayer to disclose information on his gross income/receipts that were subject to final withholding taxes, such as interests, royalties, dividends, fringe benefits, as well as income from sale of real properties and shares of stocks, proceeds of life insurance, retirement benefits/pensions, gifts, inheritance.

The information required to be reported include the amount of income and the amount of final tax withheld or paid, among others.

Collectively, this portion of the tax return has been referred to as the Supplemental Information Return or SIR.

The SIR was intended to be mandatory beginning tax year 2012.

However, several groups of businessmen and individual taxpayers raised strong objections against the requirement.

A congressional inquiry was conducted to hear these points. It was noted that most of the information being required by the BIR is already in the database of the agency and, therefore, the disclosures being required are unnecessary.

It was also pointed out that the requirement to disclose information relating to an individual’s bank account is illegal and contravening of the Bank Secrecy Law.

Met with such strong opposition, the BIR deferred the implementation of the SIR requirement to tax year 2013.

From then on, businessmen and groups of individual taxpayers had been successfully summoning their allies in Congress to challenge and oppose the SIR and, as a result, the BIR has been compelled to defer its implementation in 2013 and 2014.

Revenue Memorandum Circular No. 13-15, the last circular issued on this matter, provided for the mandatory submission of the SIR for income tax filing covering  calendar year 2015—that’s the tax return to be filed on or before April 15, 2016!

And this time around, Congress is in recess and taxpayers have no one to turn to for the review of the SIR requirement.

So, unless this subject matter is picked up by the presidential candidates as a burning campaign issue, we would likely see the BIR strongly reiterating the compliance with the requirement for the SIR.

And taxpayers must comply if they want to avoid penalties for filing inaccurate returns.

Assuming taxpayers are willing to comply, will it be easy for them? Where will they obtain all the information? Would their banks be prepared to provide them a copy of BIR Form 2307 indicating the amount of interest income paid on their deposit and the amount of tax withheld therefrom? Would their stockbrokers be ready to provide them a summary of all their stock transactions during the year and the taxes applied thereon? Can they go to the company or companies where they are holding shares of stocks and demand for the summary of dividends paid to them during the year as well as the corresponding taxes? In case this information is not provided to them, can they pass on to these companies the penalties that may be imposed on them?

Under the rules, the compromise penalty is P1,000 per information return not filed.  There is also a P1,000 compromise penalty for each incorrect/erroneous information subject to maximum amount of P25,000.

With the deadline looming, will the entities who paid these types of passive income —banks, stock brokers, companies who paid dividends to their stockholders, employers who provided fringe benefits to their executives, etc. —be ready to provide the necessary tax information?

Taxpayers, of course, may try to seek support from the Department of Finance or even Malacañang and hope that the latter can persuade the Commissioner to issue a circular to move the tax period covered by the mandatory reporting of the SIR.

In addition to the points already raised, a strong argument that should be presented is that the SIR is an unnecessary requirement that imposes additional burden on businesses in the Philippines.

We do not want to create another reason for the country to go down the global or regional competency ranking.

Moreover, with the BIR’s current aggressive computerization program, it is expected that the agency may be able to gather soon the information it needs from the different reports and information submitted by taxpayers under the electronic tax filing system.  Hence, the SIR will no longer be necessary.

The SIR will indeed cause a stir to this year’s tax filing season. It is unfortunate that Congress accepted the yearly deferral of the SIR as a solution to address the arguments against it.

In hindsight, it should have demanded a permanent remedy.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is the Chair and CEO of the P&A Grant Thornton. Feedback at <[email protected]> and < [email protected] >.  For previous articles, please visit <map.org.ph>)