Staying compliant with tax regulations can be a daunting task for many entrepreneurs and business owners. With the signing of the Ease of Paying Taxes (EoPT) Law or Republic Act No. 11976, new classifications for business taxpayers have been introduced. This segregated approach not only seeks to streamline tax compliance but also aims to ensure that businesses of all sizes are treated equitably. Whether one is a budding startup or a well-established corporation, understanding these new classifications and how they impact your tax obligations is crucial. In this article, we delve into the specifics of Revenue Memorandum Order (RMO) No. 37-2024, exploring how the Bureau of Internal Revenue (BIR) is leveraging these changes to create a more efficient and fair tax environment for all.
RMO No. 37-2024 set forth the criteria in classifying business taxpayers into four categories: Micro, Small, Medium and Large Taxpayers. The classification is determined based on a taxpayer’s gross sales. A Micro Taxpayer is one whose gross sales for a taxable year is less than P3,000,000. A taxpayer is classified as “Small” if its gross sales for a taxable year is at least P3,000,000 but less than P20,000,000, while a Medium Taxpayer is one whose gross sales is at least P20,000,000 but less than P1,000,000,000. Finally, those whose gross sales exceed P1,000,000,000 are classified as Large Taxpayers.
The initial classification of taxpayers registered in 2022 and prior years will be based on the declared gross sales in their 2022 Income Tax Returns (ITR). On the other hand, those who have not filed their 2022 ITR or those registered in 2023 and 2024 before April 27, 2024 (i.e., the effectivity of Revenue Regulations No. 8-2024), will be initially classified as Micro taxpayers, unless they are Value-Added Tax-registered, in which case, they will be initially classified as Small taxpayers.
After April 27, newly registered taxpayers will be classified according to their declaration in their Registration Forms (BIR Form No. 1901 or 1903). The initial classifications will remain effective until reclassified. Taxpayers can view or inquire about their classification through the BIR’s Online Registration and Update System or ORUS (https://orus.bir.gov.ph/home).
To ensure that the tax obligations of businesses accurately reflect their current economic status and gross sales, the RMO provides a reclassification process which can be initiated by either the taxpayer or the BIR. Reclassification requests may be submitted by taxpayers manually to their home Revenue District Office (RDO) or through ORUS together with the required supporting documents. The new classification will take effect upon receipt of notification by the taxpayer from the BIR, subject to the final outcome of any ongoing audit/assessment.
In line with the objective of the EoPT law, the process for shifting from lower to higher reclassification is relatively straightforward, with manual requests processed and approved within the day, and requests made through ORUS automatically approved. On the other hand, requests for taxpayer’s reclassification from a higher to a lower level are processed within seven working days and require the approval of the Regional Director or Assistant Commissioner (ACIR) of the Large Taxpayers Services (LTS), as applicable.
The BIR’s ability to initiate reclassifications based on updated financial data ensures that taxpayer categories remain accurate and reflective of their current economic status. The reclassification can only be initiated every two years based on the taxpayers’ gross sales from latest ITR or VAT returns. RDOs/LT Divisions may recommend the reclassification if the current classification of the concerned taxpayer is found incorrect based on audit investigation findings, subject to approval by the Regional Director or ACIR-LTS. Validated or approved taxpayers for reclassification will be informed accordingly via registered mail, email or any other possible means.
It is important to note that taxpayers reclassified due to a BIR-initiated reclassification cannot request reclassification within the same taxable year, unless there are meritorious reasons duly verified by relevant information.
As the EoPT Law expanded the classification of taxpayers, the BIR can leverage these new classification to enhance the efficiency and equity of tax administration, and to better align with the modern economy and tax environment. By categorizing business taxpayers into Micro, Small, Medium, and Large based on their gross sales, the BIR can tailor its policies and procedures to better suit the needs and capacities of the various taxpayer groups. This classification allows for more targeted tax compliance strategies, ensuring that smaller businesses are not overburdened while larger entities are adequately monitored. Additionally, it is also worth noting the BIR’s use of digital platforms, such as the ORUS, which facilitates easier access to classification information and streamlines the reclassification process, thereby reducing administrative overhead and improving the taxpayer experience.
Evidently, RMO No. 37-2024 is expected to provide a defined classification criteria for businesses, as well as a standardized reclassification process for the guidance of the taxpayers and the BIR. Having these standardized processes will provide transparency on the roles and responsibilities of each party, help reduce taxpayer misclassification, promote fairness and prevent potential misuse of reclassification authority without justification.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Caren Ann Marie Bacera is an assistant manager with the Tax Services group of Isla Lipana & Co., the Philippine member firm of the PwC global network.
caren.ann.marie.bacera@pwc.com