We, the Philippine Chamber of Commerce and Industry (PCCI), the Tax Management Association of the Philippines (TMAP), the Management Association of the Philippines (MAP), Employers Confederation of the Philippines (ECOP), Philippine Exporters Confederation Inc. (PHILEXPORT), and the Financial Executives Institute of the Philippines (FINEX), respectfully submit this position paper to convey our concern on RMC 40 -2011
which requires submission of Supplemental Information Return (SIR) as part of the annual income tax returns of thefollowing individual taxpayers:
a. Individuals with compensation income exceeding P500,000
b. Individuals with two or more employers
c. Individuals with tax exempt income exceeding P500,000
d. Individuals with income subjected to final tax exceeding P125,000, and
e. Self-employed individuals, estates and trusts.
The RMC requires reporting in the SIR of passive income items/receipts which are tax exempt, or have been subjected to final withholding taxes, as well as the final taxes withheld for each type of income. The amounts to be reported as income or receipts are the actual amount received, fair market value or net capital gains, as the case may be. Examples of tax exempt income to be declared are proceeds of life insurance policy, return of
premium retirement benefits, pensions and gratuities, and personal/real properties received thru gifts, bequests and devises.
On the other hand, the reportable income items/receipts subjected to final withholding taxes include Interests, royalties, dividends, prizes and winnings, fringe benefits, compensation subject to 15% preferential tax rate, and sale or exchange of properties. For sale or exchange of real properties, it is required that the specific property, TCT/ tax declaration number and certificate authorizing registration (CAR) number have to be reported, while for shares of stock, the information required are kinds of stock, stock certificate no., CAR no., number of shares and date of issue.
We respectfully oppose RMC 40-2011 for the following reasons:
a. The requirement of RMC 40-2011 to file income tax returns with SIR contravenes the provisions of Section 51 (a) of the Tax Code, particularly: " (2) The following individuals shall not be required to file an income tax return: (b) An individual with respect to pure compensation income, xxx x x the income tax on which has been correctly withheld xxxxx; (c) An individual whose sole income has been subjected to final withholding tax xxxxx;" Based on the above provisions, 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 income tax return. On the contrary, RMC 40-2011 requires such individuals with a certain level of income or of final withholding tax to file income tax return with supplemental information return. "(3) The foregoing 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." Considering the foregoing provisions, the supplemental information return imposed by RMC 40-2011 which circular was approved solely by the Commissioner of Internal Revenue, is not a valid requirement since it is not based on any rules and regulations prescribed by the Secretary of Finance.
In brief, RMC 40 -2011 has no legal basis and in fact, it is even contrary to all the aforecited provisions of the Tax Code.
b. Moreover, it will be recalled that this new reporting requirement mirrors practically the disclosure requirement in the Annual Information Return under Revenue Regulations (RR) 2 – 2011. Said RR was subsequently withdrawn (RR 6 – 2011) in view of the serious criticisms raised by various sectors including several legislators. The main opposition put forward was that the disclosure requirement was a violation of the individual's right to privacy and the Bank Secrecy Deposit Law. Another argument against said requirement is that the needed information is already available in the BIR and/or 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, e.g., capital gains tax returns. In short, the SIR is a redundant requirement which imposes additional burden to taxpayers but which will not necessarily add to the tax collections of the BIR. Moreover, erroneous declarations in the SIR could expose the taxpayer to penalties of perjury as in any tax return submission to the BIR.
c. Lastly, 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 is to be 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 said investments. The requirement to account for and report such income negates thatadvantage. In view of all the foregoing grounds, we respectfully request that RMC 40 – 011 be withdrawn.
Thank you and more power to the DOF and the BIR.
MR. EDGARDO G. LACSON MR. RONNIE B. ALCANTARA
Employers Confederation of the Financial Executives Institute of the
Philippines (ECOP) Philippines (FINEX)
ARCH. FELINO PALAFOX, JR. DR. FRANCIS CHUA
Management Association of the Philippine Chamber of Commerce and
Philippines (MAP) Industry (PCCI)
MR. SERGIO –ORTIZ-LUIS, JR. ATTY. AGNES LE. CASABAR OXALES
Philippine Exporters Confederation Inc. Tax Management Association of the
(PHILEXPORT) Philippines (TMAP)