The new year aoffstarted here, and it would be prudent to start the year off on the right foot by learning about trends that taxpayers may want to anticipate. This year there are new tax rules that need to start and end, some of which are outlined below.
GLOBAL RECOGNITION VALUE ADDED TAX (VAT) ENTRY ON EQUIPMENT GOODS
The introduction of the Tax Reform for Acceleration and Inclusion (TRAIN) law in 2018 brought with it an amendment that provides that “input VAT amortization” on capital goods purchased or imports will no longer be allowed as of January 1, 2022. Therefore, the related input VAT on capital goods acquired in 2022 can be fully recognized up front and be claimed as input tax credits on output tax in the month the capital goods are purchased or imported, whether or not the aggregate acquisition cost in a calendar month exceeds 1 million pesos.
Prior to the entry into force of the TRAIN Act, the Tax Code, as amended, provided that input VAT on capital goods purchased or imported during a calendar month for use in a trade or business is spread evenly over 60 months if the overall acquisition cost for these goods, excluding the VAT component thereof, exceeds 1 million pula; provided, however, that if the estimated useful life of the capital goods is less than five years, input VAT is spread over such a period.
On the above development, what will happen to the unused input VAT as of December 31, 2021?
Under the TRAIN law, unused input VAT can still be written off as intended until it is fully used. Thus, it is essential for taxpayers to separately track input VAT on purchases or imports made from January 1, 2022, and those acquired by December 31, 2021 at the latest.
CHANGE OF REGIONAL OPERATIONAL HEADQUARTERS (ROHQ) INCOME TAX RATE
This year’s tax trends will also affect ROHQs. As of January 1, 2022, ROHQs will no longer be considered special companies subject to the preferential tax rate. They will now be subject to corporate income tax (RCIT) in the same way as resident foreign companies (RFC).
Previously, under the TRAIN Act, ROHQs were subject to a preferential tax rate of 10% on their taxable income. However, due to the effectiveness of the Law on Business Recovery and Fiscal Incentives for Businesses (CREATE) and in accordance with Tax Regulation (RR) No. 5-2021, the tax rate has increased to 25% RCIT. With the change, the 1% minimum corporate income tax (MCIT) is now also applicable provided that the ROHQ is in its fourth tax year in 2022. The MCIT rate is in effect for ROHQs from January 1, 2022 to June 30, 2023. The MCIT rate will return to 2% as of July 1, 2023.
Given the changes, ROHQs should switch from Form BIR # 1702-MX to Form BIR # 1702-RT when preparing their tax returns.
NEW EXCISE TAX RATES
Further adjustments to excise duty rates on certain excisable products are also expected. The adjustment process began with the implementation of the TRAIN Act, with updates released under subsequent regulations. These include Republic Law (RA) No. 11346, also known as the Tobacco Law of 2019, which increases the excise tax from 50.00 pesos to 55.00 pesos per packet. hand-wrapped or machine-wrapped cigarettes.
On the other hand, RA No. 11467 increased certain excise taxes on alcohol, tobacco products and electronic cigarettes. For fermented liquors, the increase is from 37.00 pesos to 39.00 pesos per liter. For heated tobacco products, the increase is from P27.50 to P30.00 per package of 20 units or combinations of packages not exceeding 20 units. There are other upward adjustments on excise taxes, and the effective date of these adjustments is January 1, 2022.
RETURN AT 3 YEARS FOR THE CARRY-OVER OF NET OPERATING LOSSES (NOLCO)
NOLCO’s deferral period had been adjusted to mitigate the impact of COVID-19 on businesses. Under RR n ° 25-2020 (implementation of certain provisions of Bayanihan to Recover as One Act), the net operating loss (NOL) for the taxable years 2020 and 2021 had to be carried over as a deduction from the gross income for the next Fifive consecutive tax years immediately following the year of that loss.
For 2022, the NOLCO period will return to three years. Therefore, for taxpayers using calendar years, their NOL for the year ending December 31, 2022 may be carried forward for three consecutive taxable years. On the other hand, for taxpayers using Fifiscal years, in accordance with fiscal circular (RMC) no.138-2020, those whose fiscal years end after June 30, 2022 will revert to three consecutive taxable years for their NOL committed during fiscal years ending after June 30, 2022.
Starting the New Year off on the right foot means taxpayers need to know about new tax trends to facilitate compliance and decision making. It is necessary to know the latest trends, what is happening and what is happening, in order to cope with the changes. This will help ensure taxpayers have the tools they need to start the year off right.
Let’s Talk Tax is a weekly column by P&A Grant Thornton that aims to keep the public informed about various tax developments. This article is not intended to be a substitute for competent professional advice.
Mary Grace G. Lualhati is senior manager of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.