Business groups call for withdrawal of controversial BIR income info circular

Six major business organizations have backed moves of the House
Committee on Ways and Means calling for the withdrawal of the
controversial Revenue Memorandum Circular 40-2011 issued last
September 5, 2011 by the Bureau of Internal Revenue which requires the
disclosure of additional detailed income information of taxpayers.

In a joint position paper submitted to the House Committee on Ways and
Means, the Philippine Chamber of Commerce and Industry (PCCI), Tax
Management Association of the Philippines (TMAP), Management
Association of the Philippines (MAP), Employers Confederation of the
Philippines (ECOP), Philippine Exporters Confederation, Inc.
(PHILEXPORT), and Financial Executives Institute of the Philippines
(FINEX) conveyed their concern on RMC 40-2011 which requires the
submission of a Supplemental Information Return (SIR) as part of the
annual income tax returns of taxpayers.

The committee chaired by Rep. Hermilando Mandanas (2nd District,
Batangas) has been conducting hearings on RMC 40-2011 on the basis of
a letter of Rep. Magtanggol Gunigundo (2nd District, Valenzuela City)
dated October 21, 2011 which states that there is no legal basis for
RMC 40-2011 to stand since law is needed to carry out what the BIR
wants under this new memorandum circular.

Gunigundo said RMC 40-2011 basically implements the Annual Information
Return (AIR) that mandates list up of passive income of taxpayers
under Revenue Regulations 2-2011 that was already suspended last March
by Finance Secretary Cesar Purisima, through the efforts of the House
Committee on Ways and Means, by Revenue Regulation 6-2011.

The joint position paper was signed by PCCI President Francis Chua,
TMAP President Atty. Agnes Le. Casabar Oxales, MAP President Architect
Felino Palafox, Jr., ECOP President Edgardo Lacson, PHILEXPORT
President Sergio Ortiz-Luis, Jr., and FINEX President Ronnie
Alcantara.

The group objected to RMC 40-2011 because its requirement to file ITRs
with SIR contravenes the provision of Section 51(A)(2) of the Tax Code
which provides that the following individuals shall not be required to
file an income tax return : (b)an individual with respect to pure
compensation income, as defined in Section 32 (A)(1), the income tax
on which has been correctly withheld under the provisions of Section
79 of the Tax Code; and (c) an individual whose sole income has been
subjected to final withholding tax pursuant to Section 57(A) of the
Tax Code.

Based on these provisions, the position paper cited it is clear that
an individual whose compensation income has been correctly subjected
to withholding tax regardless of amount or whose sole income has been
subjected to final withholding tax is not required to file an ITR. On
the contrary, RMC 40-2011 requires such individuals with a certain
level of income or of final withholding tax to file an ITR with SIR.

The position paper cited RMC 40-2011 also contravenes Section 51(A)(3)
of the Tax Code which provides “The forgoing notwithstanding, any
individual not required to file an income tax return may nevertheless
be required to file an information return pursuant to rules and
regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.”

“The SIR imposed by RMC 40-2011, which was approved solely by the BIR
Commissioner, is not a valid requirement since it is not based on any
rules and regulations prescribed by the Secretary of Finance,” cited
the joint position paper.

In brief, the joint position paper said RMC 40-2011 has no legal basis
and is even contrary to all the aforecited provisions of the Tax Code.

The joint position paper also criticized the SIR as a redundant
requirement which imposes an additional burden to taxpayers but which
will not necessarily add to the BIR tax collections. Moreover, its
said erroneous declarations in the SIR could expose the taxpayer to
penalties of perjury as in any tax return submission to the BIR.

The needed income information is already available in the BIR and can
be culled from the reports submitted by the income payors or from the
tax returns already filed by the taxpayers themselves with the BIR,
for instance capital gains tax returns according to the joint position
paper.

Lastly, the joint position paper said while on surface, the reporting
requirement seems easy to comply with, in reality, it is difficult to
implement considering the nature and details of information required
to be reported.

For instance, getting such detailed information from the banks will
take time given the number of bank customers and the volume of
transactions involved. “Gathering and summarizing all the required
details on the other passive income items is also a tedious process,”
it cited.

It noted that one of the attractions for choosing investments with tax
free or net of tax yields is the exemption from the hassle of
accounting for and reporting of income received from such investments.
The requirement to account for and report such income negates that
advantage, stressed the joint position paper.

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