RR 3-2024: Implementing the Amendments by Ease of Paying Taxes Act (EOPT) on Value Added Tax (VAT) and Percentage Tax

On April 11, 2024, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 3-2024 which implements the amendments on Value Added Tax (VAT) and Percentage Tax made by Republic Act (RA) No. 11976, also known as Ease of Paying Taxes (EOPT) Act.

RR 3-2024 shall take effect 15 days after publication in the BIR websites or Official Gazette. Considering the publication was on April 11, 2024, the effectivity date of RR 3-2024 is estimated to be April 27, 2024.

The EOPT and RR 3-2024 will affect the already existing rules on VAT and Percentage Tax. Seller of service and leasing of properties are the most affected because they need to make changes in how they process and account for their sales.

In this article, we will discuss the relevant amendments implemented by RR 3-2024 that you must know.

If you wish to read the full content of Revenue Regulation No. 3-2024, you may also download it here.

Recognition of Sales

Revenue Regulation No. 3-2024 and EOPT changed the way seller of services and lease of properties recognize and record sales.

Both seller of goods/properties and seller of services/lease of properties are now mandated to adopt accrual method in recognition or recording of sales. Cash method, which was previously implemented for seller of services and lease of property, will not be accepted upon the effective date of RR 3-2024.

Gross Sales Will Be Used

For uniformity, all earlier references, such as “Gross Selling Price”, “Gross Value in Money”, and “Gross Receipts”, will now be referred to as “Gross Sales”, for both seller of goods/properties and seller of services/leasing of properties.

Invoice as Primary Sales Document

Since seller of services and lease of properties are now mandated to follow accrual method of recognizing and recording sales, the EOPT Act and Revenue Regulation No. 3-2024 also mandates the use of Invoice for both seller of goods/properties and seller of services/leasing of properties.

Seller of services and lease of properties are mandated to stop using Official Receipt as primary sales document. Instead register in BIR and apply for authority to print/use Invoice. Official receipt will be considered supplemental document upon effective date of Revenue Regulation No 3-2024.

As consideration for the transition, the BIR, per Revenue Regulation (RR) No. 7-2024, allowed seller of service/leasing properties to convert and use the remaining Official Receipts as Invoice. Provided they follow the following requirements:

(Important Update: On June 13, 2024, BIR issued Revenue Regulation (RR) No. 11-2024, which amends provisions of RR 7-2024. Will put an insert on updated rules made by RR 11-2024)

• Strikethrough the word “Official Receipt” (Example: Official Receipt) and stamp the word “Invoice” or “Cash Invoice” or “Charge Invoice” or “Credit Invoice” or “Billing Invoice” or “Service Invoice” or any name to be used as primary invoice until December 31, 2024. (Important Update: Per RR 11-2024, the until December 31, 2024 is changed to until fully consumed.)

• Submit Inventory List of Unused Official Receipt to be Used as Invoice showing the number of booklets and serial number within 30 days from effectivity of RR 7-2024 dated April 11, 2024. If the effectivity of RR 7-2024 is April 27, 2024, then the 30 days will be estimated on or before May 27, 2024. (Important Update: Per RR 11-2024, the 30 days deadline, which is May 27, 2024, is changed to July 31, 2024.)

For the detailed and complete rules on how to transition to invoice and follow this requirement, you may refer to Revenue Regulation No. 7-2024. You may download here.

(Important Update: Read the amendments made by Revenue Regulation No. 11-2024, you may download it here.)

Billing for Sale of Services or Lease of Properties on Credit

Another significant amendment you should know is that due to the shift from cash method to accrual method, the basis of sale of service shall now be referred to as “Billed” or “Billing”, whichever is applicable. It will no longer be based on “receipts” or “payments”.

The effect of such, for example you are a freelancer. Let’s say you billed your client for your work done and gave the client 15 days credit term, meaning your client will pay you after 15 days.

In the past, upon billing your client, you are not required to declare it as sales until collected. You only record it as sales once collected. But with this amendment, you must now declare the amount you billed to your client as sales, even if it is not yet collected.

Below is a summary of the suggested journal entry:

5/1/2024 – Billed Client

Journal entry will be:

Debit: Accounts Receivable    xx

Credit: Sales                                   xx

5/15/2024 – Collected from Client

Journal entry will be:

Debit: Cash                            xx

Credit: Accounts Receivable   xx

For seller of service/lease of properties who don’t give credit term to customer, or usually sell in cash, there’s not much changes in the journal entry. The change will only be on the primary sales document you issue. Instead of issuing Official Receipt, you will issue Invoice upon effective date of this Revenue Regulation No 3-2024.

VAT-Exempt Threshold for Non-VAT Registered

As per writing date of Revenue Regulation No. 3-2024, the threshold for VAT-Exempt, also known as Non-VAT Other Percentage Tax, is still at three million pesos (P3,000,000).

However, the amount of threshold will be adjusted every three years based on Consumer Price Index (CPI) published by CPI, as per amendment made by EOPT.

Filing and Payment via Electronic Platforms

Although electronic platforms, such as eBIRFORMs and EFPS, have been around as early as 2015, the Revenue Regulation No. 3-2024 and EOPT Act just emphasizes that filing can be made in any electronic platforms available.

In cases the platforms are unavailable, filing and payment can be done manually.

However, in case of unavailability, it is still advisable to keep proof of unavailability, like a screenshot, before filing manually. Or wait for proper BIR advisory that explicitly advice taxpayer to file manually.

VAT on Sale of Services and Lease of Properties

VAT on sale of service and lease of properties shall be computed as follows:

Gross Sales (excluding VAT) x 12%

Gross Sales shall refer to the amount of money, or its equivalent, which pertains to as follows:

• Contract Price
• Compensation (not employee/employer relationship)
• Service Fee
• Rental
• Royalty
• Materials Charged

For long term contracts over one year, the invoice shall be issued on the month which the service or lease of property is made.

Allowable Deduction from Gross Sales

For purposes of computing taxable base for the quarter, deductions from gross sales are allowed as follows:

• a refund is made, or credit memorandum of refund is issued
• sales discount granted and shown in the invoice

Output VAT Credit on Uncollected Receivables

One of the significant amendment brought by EOPT and Revenue Regulation No. 3-2024 will be the introduction of Output VAT Credit on Uncollected Receivables. It applies to both seller of goods and services.

Output VAT Credit on Uncollected Receivables pertains to the output VAT of billed and reported sales from previous quarter that were not collected within the agreed upon credit term with customer. It means that there was a lapse in the payment of customer on agreed credit term.  

As such, next quarter VAT filing, the taxpayer can use the VAT on the uncollected receivable as Output VAT Credit provided that it meets all of the following requirements:

• The sale or exchange has taken place after the effectivity of this revenue regulation. If assuming the effectivity of RR 3-2024 is April 27, 2024, then it will apply to sales declared April 27, 2024, and onwards. Any output vat on uncollected sales on credit prior to April 27, 2024 (estimated effectivity date), output vat credit will not be allowed;
• The sale is on credit or on account;
• There is a written credit term, or period to pay, indicated in the invoice or any primary sales document;
• The amount of VAT is separately and clearly shown on the invoice;
• The sale is reported specifically in details in the Summary List of Sales in the period when the sale was made. And not reported as “Various” sales;
• The seller reported in the VAT return the corresponding output vat within the deadline or period prescribed;
• The period agreed upon, or credit term, has elapsed; and
• The output VAT of the uncollected receivable was not claimed as deduction from gross income or bad debt.

To follow this requirement, you must have a proper bookkeeping or record keeping of your sales and accounts receivable. You may use MPM Accounting Software Pro Edition to hep you with this process. Register here for 30 days trial: www.mpm.ph/tax

Claim for Refund/Tax Credit Certificate of Input Tax

Another significant amendment made by EOPT Act and Revenue Regulation No. 3-2024 is the claim for refund or tax credit certificate of input tax.

The claim for refund of input tax can be made within two (2) years after the close of the taxable quarter where the sales was made.

For zero-rated sales, to be considered valid, the payment for the sales must have been made in acceptable foreign currency duly accounted for following Bangko Sentral ng Pilipinas Rules and Regulations.

This claim for refund or tax credit certificate of input tax also applies to VAT Registered person who cancelled, retired, or closed its business. Or has change in status. Taxpayer can also apply for refund within two (2) years from the date of cancellation of its business. Date of cancellation will be based on the date of the issued BIR Tax Clearance as proof of closure.

The BIR Commissioner shall grant the refund or tax credit within ninety (90) days from the date of submission of invoices and other documents supporting the application. The 90 days covers from date of filing until release of the payment of the refund or issuance of tax credit certificate.

In case BIR Commisioner denies the application for refund or tax credit certificate or fails to act upon the application within 90 days, the taxpayer can appeal in Court of Tax Appeal (CTA) within 30 days from the receipt of the BIR Commissioner denial or upon the lapse of the 90 days.

Another significant amendment on Claim for Refund or Tax Credit Certificate of Input Tax is the introduction of risk-based approach in processing VAT Refund Claims. The claims will now be classified into low, medium, and high-risk. Wherein only the medium and high-risk will be subjected to BIR Audit or verification.

I hope this article have been helpful for you in learning or be aware of the changes in the VAT and Percentage tax rules made by EOPT and RR 3-2024. Feel free to share what you think in comment box and share this to people you think will benefit from it.