Automation with the use of proper tools has key advantages, such as efficient utilization of resources with minimal human intervention, elimination of manual repetitive tasks, and increased productivity and profits. Adopting automated systems often results in positive yields in the long run. In fact, the Philippine government is also heading towards automation and digital transformation, with billions of pesos from the national budget allotted for this purpose. Evidently, digitalization is pushing forward, and automation is happening more quickly.
More specifically, the Bureau of Internal Revenue (BIR) has embrace transformation by enhancing its systems and processes to better achieve its purpose — to collect taxes through the enforcement of tax law. In January, the BIR issued Revenue Memorandum Circular No. 7-2023 clarifies the Return Processing System (RPS) Assessment.
RPS is the BIR’s information system that processes taxpayer returns. The system is designed to detect: (i) a tax return filed late, where no corresponding penalties were paid, (ii) a tax return filed with declared tax due, where no corresponding payment was detected, or (iii) a tax return filed with tax due, with only partial payment detected. The system will generate an “RPS Assessment” once it has identified any of the above circumstances. Based on the RPS findings, the Large Taxpayers Document Processing and Quality Assurance Division will issue an RPS Assessment notice to inform the concerned taxpayers of their taxes still due for payment. Failure to settle the outstanding amount within the prescribed timeline indicated in the notice will result in the enforcement of collection remedies for delinquent tax liabilities.
Remember that tax returns contain a written statement that they are made under penalty of perjury. Hence, if the taxpayer willfully files a return with this declaration, it is expected that the information contained therein has been made in good faith and is verified by the taxpayer to be true and correct pursuant to the Tax Code. Thus, the moment the taxpayer fails to pay the declared tax payable in the return within the prescribed due date, the BIR considers it a “delinquent account” arising from a self-assessed tax liability from tax returns filed by the taxpayer himself.
The Tax Code expressly specifies the remedies for the collection of delinquent taxes. The BIR may collect through distraint of personal property and by levy upon real property including interest and rights therein, or through civil and/or criminal action per discretion of the authorities in charge of the collection of such taxes. In 2019, the BIR clarified that a Preliminary Collection Letter (PCL) and a Final Notice Before Seizure will no longer be sent to delinquent taxpayers. Upon validation by the collection enforcement office, a warrant of distraint, levy, and/or garnishment is to be immediately issued. Once received, the warrant is deemed sufficient authority to the person owning the debts or having in his possession or control any credits belonging to the taxpayer, to turn them over to the government. Having said this, the delinquent taxpayer’s assets will be put on hold and will be reserved as settlement for the assessed amount.
The RPS Assessment is not synonymous with an assessment notice arising from a tax audit where the taxpayer has the chance to dispute the assessment. Considering that the contents of the RPS Assessment are based on the taxpayer’s own declaration in the filed tax return, and that no books of account and accounting records are to be examined or subjected to audit, the issuance of a Letter of Authority is not required. Hence, upon receipt of the RPS Assessment, the assessed delinquent taxes should be settled immediately. Otherwise, the taxpayer may face a perjury case punishable by imprisonment under the law.
Previously, RPS Assessments were only used as bases for preparing PCLs to be sent to delinquent taxpayers. Following this clarificatory issuance from the BIR, RPS Assessments will be used to protect the interest of the government and to immediately collect what is due to the government. Hence, as part of the BIR’s civil or administrative remedies under the Tax Code, the RPS Assessment notice is now considered a Collection Letter used to administer collection of delinquent accounts.
It may be advisable for taxpayers to secure from the BIR a list of open cases to identify and verify the tax returns that it has allegedly failed to file since it may be inferred that an unfiled return is tantamount to unpaid taxes. Now that the filing of the annual income tax return draws near, taxpayers should file their returns early and secure a copy of the tax return receipt confirmation for filers using the e-BIR forms package or the filing reference number for filers using the Electronic Filing and Payment System, and importantly, to settle the tax payable on time and secure a payment confirmation from the bank to avoid being tagged as a delinquent account in the RPS. Note that this also applies to all kinds of taxes where tax returns have been willfully filed by the taxpayer.
The BIR has been continuously intensifying its tax collection efforts and cleaning up its accounts receivable and delinquent accounts. Now, the Bureau is taking advantage of automation for monitoring tax compliance and collecting taxes rightfully due to the government. Taxpayers, on the other hand, should not waver in their own efforts and consider tax in their digital transformation journey to enhance their compliance.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Crystabelle Cruz Lucas is a senior manager at the Tax Services department of Isla Lipana & Co., the Philippine member firm of the PwC network.