Rafal, Cherry Liez: A Look At The BIR’s EFPS

In the year 2001, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulations No. 9-2001 dated August 3, 2001 prescribing the electronic filing of tax returns and payment of taxes or what was called as the Electronic Filing and Payment System (“EFPS”). This was pursuant to Section 244 of the National Internal Revenue Code of 1997, and in relation to Section 27 of Republic Act No. 8792, otherwise known as the Electronic Commerce Act.

The rationale for developing the EFPS is to provide top quality and convenient service by providing a much faster processing and immediate confirmation of the filing of tax returns. It deviates from the conventional method of manually filing the tax returns to the various revenue district offices scattered throughout the country. By using the EFPS, taxpayers may directly encode and submit their taxes on-line with the use of the internet through the BIR website.

It was said that the traditional manual filing is highly susceptible to human errors. After almost a decade of using the EFPS, one could easily ask oneself – is it really helpful? Did it really meet the objectives set by the BIR? Or did it make life a little bit harder, especially for accountants?

I came to know of the EFPS when I was employed sometime in 2003. For half a decade now, I am always using the system almost thrice a month since my work is directly related to the filing and payment of various taxes – withholding taxes, income taxes, documentary stamp taxes, registration fees and value-added taxes. The system is part of my work and anything that could help enhance the system is a welcome respite for me like any accountant in the Philippines.

Indeed, I think the EFPS is a big help in my daily work. This holds true to those large taxpayers as well. Imagine that the company that you are working for, or your own business, has its head office in the province, like in Mindoro and it is remitting huge taxes to the caverns of the government. As a large taxpayer, the company will be classified to be under the jurisdiction of the Large Taxpayers Service. This would either mean such company belongs to either Revenue District Office No. 116, 119, 121 or 122 depending on the type of business and the year the company was transferred to the jurisdiction of the Large Taxpayers Service. These RDO’s handling the Large Taxpayers are all located in Metro Manila, with the exception of RDO 123 that is located in Lahug City, Cebu. Imagine the horror if you would be required to go to Manila thrice a month to file these regular and monthly returns! That alone would make the convenience of the EFPS evident.

Yet, you could also wonder whether or not the BIR would transfer the classification of a company from Non-large to Large Taxpayer if the EFPS was not implemented in the first place? Well, that is another intriguing line to pursue in the future considering that a controversy now lies hanging in the air with regards to the real reason behind the recent resignation of Commissioner Sixto Esquivias. There were rumors that he did not want to let go of his grip on the Large Taxpayers Service because of the collections. Alas, we will not discuss that matter here as it is beside the point.

Convenience for the taxpayers is the foremost consideration in developing the EFPS, as what the BIR would like to remind us. But let us examine the facts closely. I, for one, had encountered a lot of problems with the system, and the top six problems are listed here.

To the best of my knowledge, I seek to expose only the truth. And as what every BIR officer who I had asked every time I am faced with problems in the system – “just bear with us”, I say also, please just bear with me. The list I made is based on my actual knowledge and experience with the system and those of my accountant friends. Supporting print screens of the systems failures and limitations are conveniently saved for future use. Anyone may ask me about it and I can show that indeed what I wrote here is true.

And thus, the list begins with –

1. Mandatory E-Filing and E-payment Format

Under the regulations, it shall be mandatory for EFPS registered taxpayers to file and pay the taxes electronically. Following the “pay-as-you-file” principle, payment of taxes is made within the banking hours of the day the return was electronically filed in case of manual payment, or within the day of e-filing in the case of electronic payment. However, no penalties are imposed for taxpayers who e-filed earlier and paid at a later date but on or before the due date for the applicable tax.

A problem arises in case of the unavailability of the EFPS. During filing deadlines when the system could not accommodate the volume of transactions, the filing via the EFPS becomes a very hard task. It requires a lot of patience to wait for the system to download and upload files. By making the e-filing and e-payment mandatory once a company is registered with the system, it becomes impossible to have a back-up plan.

The main cause of this problem is the undeniable fact that in a corporation, there are only a limited number of authorized signatories for checks issued for the account of the corporation. Due to this, if the system is unavailable, the taxpayer cannot immediately shift to filing manually because it is not allowed. The only time it may file manually is when the BIR issues a Revenue Memorandum Circular announcing the systems unavailability, which, more often is, already done later and on the very last day of filing.

When such notice is indeed received, the corporate signatories are nowhere to be found. Most of them are already out from their various offices to attend to equally important tasks. This leaves the accountant clumsily looking for other alternative ways on how to come up with the checks for the manual payment. Other accountants would often resort to filing at zero tax liability, then; opt to amend later on when the system becomes available. Following this scheme would result to the payment of interest at 20% per annum. Good if the taxes due is only minimal. However, taxes of Large Taxpayers often are over a million pesos a month for a single tax type. This would mean at least Php500 for every day of delay caused by the mandatory arrangement opted by the BIR.

What I suggest is to make the e-filing and e-payment not mandatory. In other words, every taxpayer who is registered in the EFPS may still opt to file their taxes manually. This would give them more leeway, in case of system unavailability. Why would they not have the same privilege of filing manually that other taxpayers have when the only difference between them is the fact that they are enrolled in the EFPS while the others are not?

2. Technical Problems and Limited Availability

Technical problems and limited system availability hound the EFPS since it was implemented in 2001. It is not quite uncommon for the bureau to issue revenue circulars such as Revenue Memorandum Circular Nos. 032-2008 dated April 15, 2008, 33-2008 dated April 17, 2008, 42-2008 dated May 26, 2008, and 43-2008 dated May 27, 2008 to inform the internal revenue officials and taxpayers alike of the system unavailability and the technical problems encountered by the EFPS.

I, for one, had encountered a lot of problems with the system. This includes the turtle-paced retrieval of tax returns and the miscalculation of the fields that are closed and not capable of being edited. There was this one time when I tried to e-file for one corporation, entered correctly all the Taxpayer Identification Number, Username and Passwords. However, when the system downloaded the form where one encodes the figures, I noticed that the name of the taxpayer was not the same taxpayer as I entered. In fact, it was entirely a name of another corporation that I don’t even recognize!

Imagine the horror of realizing that your tax returns may have been mistakenly filed also by other accountants. Some may not even realize that. They thought they had filed and paid already for their company’s tax return, said tax return was instead a tax return of another taxpayer? For a not too careful accountant, this would mean a case of non-filing that could subject their company to 25% surcharge based on the basic tax due, 20% interest per annum, also on the basic tax due and additionally, the ever-present compromise penalties.

Another quite frightening experience is encountered during the submission stage of the tax returns encoded online and directly in the system. During times of system limited availability, when one tries to submit the tax return, one need to wait for almost an hour before the confirmation is issued. More often, the confirmation is not issued at all. And if you try to check by retrieving the e-filed form, you don’t find it there. Then you file again. The end result would be, you have filed more than one return for the same tax type and for the same period! It may even result to multiple e-filings!

During times like these, the BIR would advise you to visit their office at the National Building in Quezon City. But what if your head office is located in Mindoro, would you still have the time to visit Quezon City when it is already the last day of the filing and payment? However, they can easily place the blame on you by saying that one should not wait to e-file until the final day. What they don’t know, you have been trying to file since the first day the taxes became due. You have been calling their lines everyday already and only told to wait until the system cleared.

A real problem indeed!

3. Over-remittance

Under the EFPS, the taxpayer will pay the tax due on the e-filed return using the electronic fund transfer. These are deemed paid once a Confirmation Number is issued to the taxpayer. Under Revenue Memorandum Order No. 10-2006, a Bank Acknowledgement Number will also be issued by the Authorized Agent Bank to the BIR to confirm that such payment was credited to the account of the government. However, the technical problems as discussed above often result in over remittances such as double or triple e-payments.

In CTA Case No. 7073 dated April 4, 2007, Maersk Filipinas was granted a tax refund for the erroneous e-payment of withholding taxes on compensation. The court found that there was indeed an error in the e-payment of taxes. The incident occurred when Maersk filed its Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form No. 1601-C) for September 2002 showing a tax due of Php662,346.83.

The amount due was paid electronically by the use of the EFPS. Upon payment through the bank, however, the EFPS did not confirm the payment of the tax. Hence, Maersk repeated the transaction by pressing the “authorize to e-pay” button, but again, no confirmation was given by the system. Hence, the following day, it made another e-payment to avoid the penalties of late payment. It was only that time that the payment was confirmed.

However, when Maersk obtained its Statement of Account from the bank, to its great horror, it discovered that the three attempts of e-payments were all successful! It took them four years to finally get a ruling for the refund with the CTA since its administrative claim was left unheeded. No interest was awarded because the court found it unreasonable to put the blame on the BIR’s shoulders when the EFPS was not functioning well considering that it was relatively new.

Similarly, an over-remittance happened in CTA Case No. 7756 dated August 6, 2009. In the case, Hewlett-Packard Philippines Corporation filed a claim for the erroneous e-payment of its Expanded Withholding Tax (EWT) for March 2006 on April 12, 2006 amounting to P2,283,079.36. The court granted the claim of over-remittance, however, there was no award of interest.

Considering that the EFPS is no longer in its pilot stage when the error occurred, is it only fair to grant interest on the over remittance when the error was due to the inefficiency of the system? Afterall, a late remittance by the taxpayer spells a 25% surcharge. Would it be fair enough if at least an interest of 12% per annum be given in this instance? This would at least cover the cost of money, notwithstanding the fact that the taxpayer also incurred attorney’s fees in filing the claim with the courts due to the inaction by the Commissioner of Internal Revenue on its administrative claim.

4. Late Dissemination

As mentioned above, the BIR issued various revenue memorandum circulars to inform the taxpayers about the problems of the EFPS. These were good issuances because at least the taxpayers were informed. However, if we examine closely, did the dissemination served its purpose?

Let’s take for example RMC Nos. 32-2008 dated April 15, 2008. This was issued to permit the manual filing of the tax returns due to the technical problems encountered in the EFPS environment. It was published in the Philippine Star only in April 16, 2008, but the deadline of the annual income tax return was set on April 15, 2008. Was it not too late for the dissemination? If it had been issued before April 15, 2008, it could have spared most companies the pain and burden of trying to e-file when the system was in fact, in downtime.

The same holds true for RMC No. 042-08 dated May 26, 2008. The deadline of the BIR returns is on May 26, 2008, the same date that the issuance was made.

Then in another instance, the BIR is aware that the technical problems occur during deadline dates when they issued RMC No. 043-08 dated May 27, 2008. But credit is duly given to then Commissioner Lilian Hefti in instructing that the Information Systems Operations Service (ISO) conduct a thorough study on this perennial problem. I, too, am hopeful that the system improves even a little, this year.

5. EFPS Availability and the 24-Hour Hotline

Or should it be properly called EFPS Unavailability? The BIR Contact Center maybe reached at (02) 981- 8888. Upon reaching the line, you will be asked the type of query that you will pose. Then someone will transfer you to the designated person who will try to help you out. One too many times, your question will be left unanswered. They will only ask you to log your query and give you a reference number.

Now, if your inquiry involves any problem encountered while filing the annual income tax return, the deadline of which is within three days, i.e. you started filing on April 12 and the last day will be on April 15, and you find out that your query was only logged-in, what would you do?

You would follow-up of course. Try calling them every now and then to see if an answer is ready. Call them until the final deadline date, and still – no answer. Then they tell you that “We will get back to you Sir/Ma’am soon”. What will you do?

Perhaps try to e-file a zero return then just make an amendment when the answer to your query is given. But what if the answer is given in October? So many months have passed? You would need to make an amendment, but would it not extend the date of the tax’ prescription? The e-taxpayers are really at the losing end here.

6. Issues in New Versions of Tax Returns and Transitory Provisions

We have this scenario when we were e-filing the quarterly Value-Added Tax returns. At that time, the new law – Republic Act No. 9337 otherwise known as the VAT Reform Act that provided to the President of the Philippines to increase the VAT rate from 10% to 12% when certain conditions were satisfied. The effectivity date of the increase was in February 1, 2006 under RMC No. 07-2006 dated January 31, 2006. However, when February 2006 came, still the BIR had not issued a new VAT return form that would replace the old form in the EFPS.

At that time, most taxpayers had complained about the outdated VAT return. The bulk of the problem lies in the fact that since not all gross receipts for the month is taxed at the rate of 12%. Some of it was still taxed at 10% considering that some collections that formed part of the gross receipts came from those billed but uncollected sale of services before the effectivity of the increase in the VAT rate. Hence, some of the collections were subjected to 10%, while others were subjected to 12%. However, the fields in the VAT returns – Line 12B Output Tax Due for the Month are closed. This meant that whatever amount was entered in the Line 12A Sales/Receipts for the Month (Exclusive of VAT), the output VAT was automatically computed to be at 12% without considering the other collections from sale of services that were still subject to the 10% VAT.

So what happened? The BIR was plagued with a lot of questions that time. There was clamor for the BIR to open the fields. But this remained unheeded until the last day of filing. They didn’t issue any RMC for any workaround procedures. What they often advised taxpayers was to wait for the new VAT returns and just amend the VAT return filed. Some taxpayers did just that and declared a higher amount of sales/revenue just to report the correct output VAT.

Then comes the Letter of Authority from the BIR to conduct an audit of all internal revenue taxes including the Value-Added Tax for calendar year 2006. Some of those taxpayers who followed their unofficial work-around procedures were assessed with under-declared sales for income tax purposes. It was indeed too easy for the BIR to see the discrepancy in the declaration of the sales by comparing the sales per VAT return versus the sales for income tax purposes. But such under-declaration was due to the work-around procedures as instructed.

The BIR would tell you that there was also an instruction to make an amendment once the new VAT returns become available. And one might question why these taxpayers didn’t amend their returns when the new VAT forms came?

Well, the RMC providing for the official work-around procedures came only in March 24, 2006 via RMC 21-2006, only a day earlier than the last day of filing of the February monthly return. Thus, who would expect that the EFPS will not be overcrowded by then? By the time you get to realize that you need to amend, other taxes and concerns of equal importance crop up and eat out your time.

Another specific problem with the versions of the tax returns is in the case of the Annual Income Tax Return (BIR Form 1702). This return is due for filing on or before the 15th day of April, or on or before the 15th day of the fourth month following the close of the fiscal year, as the case may be.

In Schedule 5A and 5B, one cannot encode a negative amount in Line 61. Without the amount in Line 61, you cannot enter the Net Operating Loss Carry-Over or NOLCO for the return period that you are currently filing even if such NOLCO is in fact incurred. If you attempt to enter the current year period, a prompt would pop-out saying –

“Year Incurred must not be equal to Return Period (Year) if item 63 is greater than or equal to 0”

This problem was presented to the BIR Contact Center before, and the official answer was for the taxpayer to exclude the values for the current return period in Schedule A then proceed to the next screens.  They said they had randomly checked the site for the EFPS particularly the BIR Form 1702 (Annual Income Tax Return for Corporations and Partnerships) under Section A on Lines 61-63 and they were able to encode amounts successfully.  However, it failed to tackle the issue of the system limitation of accepting negative amounts in Line 61.

Without the indication that there is NOLCO for the current return period, there is a risk that the BIR might disregard the NOLCO for such year. The taxpayer might be exposed to the disallowance of claiming the NOLCO benefit for the succeeding years.

Given the above limitations, would I still recommend the use of the system? Absolutely. Afterall, it was ruled that “the EFPS was developed primarily to provide Philippine taxpayers with top quality and convenient service through a much faster processing and immediate confirmation of filing of tax returns and payment of taxes due thereon (CTA Case No. 7073 dated April 4, 2007 Maersk Filipinas, Inc. vs. CIR). Moreover, it said that the very purpose of the system is to provide top quality and convenient service, at first to Large Taxpayers then to selected Non Large Taxpayers and now even to selected individual taxpayers.

However, I think it is but fitting only that the BIR must constantly improve the system. By listening to the ones who are directly involved in the e-filing of the returns, they might be able to address such issues on time.

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