The Bureau of Internal Revenue will audit percentage tax payments to ensure that the higher value-added tax-exemption threshold for small businesses under the Tax Reform for Acceleration and Inclusion Act is not abused.
This was among the BIR’s priority programs for 2019, Internal Revenue Commissioner Caesar R. Dulay said in a memorandum circular issued on Jan. 9, as preliminary data of the Department of Finance showed the BIR and the Bureau of Customs posting shortfalls in their collections of the 12-percent VAT in the first nine months of 2018.
Dulay said the BIR would “monitor selected taxpayers on their compliance with the TRAIN law through preaudit of percentage tax payments by taxpayers that changed registration from VAT to non-VAT as a result of the increase in (tax-exempt) threshold.”
To recall, the TRAIN law raised the exemption threshold for small and medium enterprises (SMEs) to P3 million from P1.9 million previously.
DOF officials had said those paying VAT before shifted to paying percentage tax, but collections from the latter were also lower than programmed.
DOF data showed that the incremental VAT from the TRAIN law collected by the BIR and the BOC from January to September last year hit only P3.6 billion, way below the target of P24.8 billion for the nine-month period.
The BIR’s additional VAT take was just P2.5 billion out of the P12.4-billion goal, while the BOC had only P1 billion out of the P12.3-billion goal.
On the low VAT collection, the DOF said in a report that “the main reason cited by the revenue agencies is that there are only three industries (power transmission, jewelry and the Bangko Sentral ng Pilipinas) that reported importation, which is now VAT-able.”
“The shortfall in VAT is also evident in overall BIR VAT revenue, which declined by 0.8 percent and short by P25.1 billion in the first three quarters, based on trend analysis. One reason for this is the surge in imports that adds to input VAT claims in the BIR, hence the lower VAT revenue,” the DOF said.
“However, if the estimated indirect VAT of P19.7 billion coming from higher spending due to the lower income tax is included, then the VAT shortfall is reduced to just P1.5 billion,” the DOF added.