IN BRIEF:
• The recent acceleration of reforms in the Philippine tax landscape significantly impacts business operations and compliance requirements, necessitating a proactive approach from organizations to navigate these changes effectively.
• In an evolving regulatory environment, businesses must go beyond mere compliance with existing laws by proactively anticipating future changes and developing strategies to navigate the complexities of new tax regulations.
• Recognizing tax compliance as a vital element of operations enhances overall business performance and efficiency, fulfilling legal requirements while driving success.
As businesspeople browse through their e-mail or scroll through social media, they may have noticed a flurry of updates regarding new laws and regulations impacting businesses. The pace of change in the Philippine tax landscape has accelerated, with several significant reforms introduced over the past two years. These changes, including the Ease of Paying Taxes Act, VAT on Digital Services Law, Real Property Valuation and Assessment Reform Act, CREATE MORE Act, and Capital Markets Efficiency Promotion Act, have far-reaching implications for how businesses operate and comply with tax obligations.
As such, staying compliant is not just about adhering to existing laws; it is also about anticipating future changes and adapting accordingly. The complexity of these new regulations can create challenges for businesses, particularly those that may not have the resources or expertise to navigate the intricacies of tax compliance on their own. Organizations must be proactive in understanding these reforms and implementing strategies to ensure that they remain compliant while minimizing risks.
The stakes are high; non-compliance can lead to significant penalties, reputational damage, and even legal repercussions. Therefore, it is essential for businesses to prioritize tax compliance as a core aspect of their operations. By adopting a strategic approach, organizations will seek to not only meet their legal obligations but also leverage tax compliance to enhance their overall business performance.
This article discusses six key strategies to strengthen tax compliance considering these recent changes.
STAYING INFORMED AND EDUCATED
Understanding the nuances of the new tax laws is crucial for compliance. Businesses should invest in training programs for their finance and tax teams to ensure that they are well-versed in the latest regulations. Regular updates from the tax authorities, including the Bureau of Internal Revenue (BIR) and other regulatory bodies, as well as the participation in seminars or workshops, can help keep staff informed about compliance requirements and deadlines.
REVIEWING CONTRACTS AND SUPPORTING DOCUMENTS
For major transactions, it is essential to conduct thorough reviews of contracts and supporting documents to ensure compliance with the latest tax rules and regulations. This includes examining agreements for any tax implications, such as withholding tax obligations or VAT treatment. By ensuring that all documentation aligns with current laws, businesses can avoid potential compliance issues and penalties.
PERFORMING INTERNAL TAX COMPLIANCE AUDITS
Conducting regular internal compliance audits is essential for identifying potential tax issues before they develop into significant problems. Businesses should establish a systematic approach to reviewing their tax practices, ensuring alignment with the most current regulations. In some cases, particularly for individuals who are new to their roles as CFO, finance manager, or tax head, it may be beneficial to engage external parties to conduct these audits. This proactive strategy can reveal discrepancies and issues related to substantiation and recording, enabling timely corrections and minimizing the risk of penalties resulting from tax audits.
ENGAGING TAX PROFESSIONALS
Navigating the complexities of new tax laws can be challenging. Engaging tax professionals or consultants who specialize in Philippine tax law can provide valuable insights and guidance. These professionals can assist in interpreting the new regulations, ensuring compliance, optimizing tax strategies to take advantage of available incentives and exemptions, and supporting businesses with their tax filings.
FOSTERING A CULTURE OF COMPLIANCE
Creating a culture of compliance within the organization is vital for long-term success. This involves promoting awareness of tax obligations among all employees, not just those in finance or tax. Regularly communicating the importance of compliance, sharing updates on tax laws, and encouraging employees to report potential issues can help build a collective responsibility towards adhering to tax regulations.
EMBRACING TECHNOLOGY
Leveraging technology can significantly enhance tax compliance efforts. Businesses should consider adopting tax compliance software that automates processes, tracks changes in regulations, and ensures accurate reporting. Moreover, utilizing data analytics can help identify trends and potential compliance risks, allowing organizations to respond proactively. Embracing technology not only streamlines compliance but also fosters efficiency and accuracy in tax-related operations.
By conducting thorough audits, and leveraging technology, organizations can meet their legal obligations and enhance their overall operational efficiency. Embracing these strategies fosters a culture of compliance that mitigates risks and positions businesses for long-term success in an ever-evolving regulatory landscape.
STRENGTHENING COMPLIANCE
Strengthening tax compliance is essential for businesses navigating the complexities of recent tax reforms. By implementing these six strategies — staying informed, reviewing contracts diligently, conducting regular compliance audits, engaging professionals, fostering a culture of compliance, and embracing technology — organizations can enact proactive measures that can lead to long-term success.
In 2023, SGV & Co.’s Tax service line articulated its own vision to further enhance its operations, aligning with the Firm’s ultimate purpose of “nurturing leaders and enabling business for a better Philippines.” This vision aims to create a tax ecosystem where taxpayers are willing to comply, regulators and practitioners collaborate for positive outcomes, tax professionals are equipped with the requisite skills and integrity, and the country becomes an investment haven where businesses can thrive. One of the tenets of the SGV Tax vision is building a tax ecosystem where taxpayer compliance is voluntary and not enforced, because the Firm believes that equipping businesses with proper information and systems can lead to a gradual transformation of taxpayer mindsets where tax becomes a dutiful obligation rather than a burden.
By encouraging all employees to take ownership of their responsibilities regarding tax obligations, companies can build a positive reputation and foster trust with stakeholders, ultimately driving sustainable growth.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Michael A. Madlangbayan is a Global Compliance & Reporting (GCR) partner of SGV & Co.