Mandatory electronic invoicing is coming in 2023
A long-time client who is in the business of selling merchandise online recently consulted our office about the best way to issue invoices and receipts to customers.
Another client, this time a well-known international brand, wanted to open automated stores without any staff. The idea was for customers to choose their products, pay for their purchase, and wait for machine to dispense their orders. The transactions would be done on-site via a mobile application, which would accept the orders as well as payment. On-site cash payment through a machine will also be available.
This client wanted to know how the stores would issue official receipts to customers, or if issuance of receipts will even be required.
In the matter of whether it is mandatory to issue official receipts, Philippine tax law provides that all persons subject to an internal revenue tax, shall issue, at the time of sale, duly registered receipts or commercial invoices. (Sec. 237, 1997 National Internal Revenue Code, as amended by Republic Act No. 10963 or the TRAIN Law)
The exception to the requirement of issuing an official receipt is when the price of the item or service sold is less than P100. While no official receipt is required to be issued in such cases, the seller must still declare the sale and pay the corresponding income, value added or percentage tax, on the transaction.
Online sellers engaged in e-commerce usually issue manual official receipts then scan or take a picture, and send to the customer through email, viber, messenger, or other electronic means. Sometimes, sellers will send the actual receipt together with the item purchased when it is delivered to the buyers.
On the other hand, for a store that has no attendant or staff, there are already machines where payments may be settled, such as those used to collect parking fees in several Metro Manila malls. These machines are able to accept payment, provide change, and issue paper receipts.
Prior to the TRAIN Law of 2018, there was the E-Commerce Act of 2000, which provided that an electronic document shall be the functional equivalent of a written document under existing laws. The BIR recognized electronic invoicing system or e-Invoice System which refers to the system developed and maintained by the e-buyer, e-seller or both in issuing invoice electronically through the Internet. E-invoice shall include sales invoice, official receipt, billing invoice, debit/credit notes or such other similar accounting documents issued electronically through the internet. (RMO 29-2002 & RMO 71-2003)
Taxpayers wanting to utilize e-Invoice must apply for authorization from the BIR, have their computerized accounting system approved and comply with additional submission of and reporting to the BIR. To date, this is mandatory only for large taxpayers.
Congress has seen the need to adapt to innovation and technology and has recognized that many transactions are being done by online sellers or what is referred to as e-commerce.
The TRAIN Law, which took effect on Jan 1, 2018, has introduced the Electronic Invoicing System (EIS) which requires taxpayers engaged in e-commerce, large taxpayers, and exporters to electronically issue their invoices and receipts as well as transmit and report their sales data directly to the BIR.
The TRAIN Law provides for a five-year timeline from its effectivity for the BIR to implement the EIS and the BIR is targeting implementation of this by 2023. Starting mid-2022, the BIR has tapped the country’s top 100 large taxpayers to implement the pilot of the e-invoicing system.
To implement this provision of the TRAIN Law, the BIR issued Revenue Regulation 8-2022 prescribing policies and guidelines for the implementation of the EIS, electronic receipts or sales or commercial invoices, which shall be in lieu of manual receipts or sales or commercial invoices for certain taxpayer businesses.
Upon full implementation, the following taxpayers shall be required to issue electronic receipts and invoices
1.) Taxpayers engaged in the export of goods and services
2.) Taxpayers engaged in electronic commerce (e-commerce)
3.) Taxpayers under the Large Taxpayers Service (LTS)
Except for taxpayers engaged in e-commerce, the other covered taxpayers are required to electronically report or transmit their sales data to the Bureau through the use of their Sales Data Transmission System.
Under the regulations issued by the BIR, covered taxpayers must:
1. Enroll in the EIS system of the BIR;
2. Register their Computerized Accounting System (CAS) generating e-receipts/ e-invoices and/or Cash Register Machines (CRM)/Point-of-Sales Systems and Certification of Sales Data Transmission System which taxpayers are required to develop in compliance with the standards set by the BIR;
3. Issue e-Receipts/e-Invoices to their customers/buyers, instead of manual receipts/invoices;
4. Apply for a Permit to Transmit the data to the BIR, and
5. Transmit the sales data covered by the e-receipts/e-invoices using their sales data transmission system into the EIS of the Bureau. Transmission of sales data must be done real time or near real time provided that it should be done within three calendar days from the date of the transaction.
On the part of the BIR, it is mandated to establish an EIS that will be capable of storing and processing all the data required to be transmitted by covered taxpayers using their sales data transmission system.
Taxpayers using the EIS shall not be required to submit slummary ist of sales, however, a summary List of purchases and importations shall still be required to be submitted.
The electronic invoicing, receipting and reporting system is different from the existing regulations of the BIR on this matter.
1. It now includes an important segment of the economy which are those businesses engaged in e-commerce and plugs the loophole in revenue recognition because at present it is difficult for the BIR to monitor the tax compliance and reporting by the businesses engaged in e-commerce. Once these businesses register under the EIS and electronically issue invoices and receipts, it will be easier for the BIR to monitor and verify the proper reporting of sales.
2. Tax Audits will also be simplified and become more efficient as sales and purchases data can be generated and verified through the EIS. Taxpayers using the EIS shall no longer be required to submit printed copies of invoices or receipts. This is in lieu of the current system where the BIR requires the taxpayer to submit hard copies of the documents.
3. With the EIS, only those relevant purchases entered into the EIS system would be eligible to claim input VAT and deductible expenses.
4. Those businesses covered by e-Invoicing/ Receipting which at present are required to submit their quarterly list of sales will no longer be required to do so because the transmittal of sales and revenue is expected to be done in real time or at the latest 3 days from the date of the transaction.
Japan, South Korea, Taiwan, Indonesia, and Brunei have implemented their respective e-invoicing systems making it mandatory under certain conditions for certain taxpayers. Vietnam, Thailand, Malaysia, New Zealand all have programs in the pipeline. While e-invoicing is not mandatory in Singapore, the government is encouraging adoption of the system.
Undoubtedly, some taxpayers will not be too happy about this and, it is expected that there will be many challenges in the implementation of the e-invoicing system. The move to e-invoicing is just a reflection of current changes brought about by technology and digitization, and business simply have no choice but to adapt.
(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, a Professor at the MLQU School of Law, and an Arbitrator of the Construction Industry Arbitration Commission of the Philippines. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)