BIR Ruling [DA-613-06]

October 12, 2006 BIR RULING [DA-613-06] E.O. 398; RR 3-2005; RR 10-2006; DA-004-2006 Department of the Interior and Local Government Bureau of Fire Protection Rm. 618, 145 Union Square Condominium 15th Avenue, Cubao, Quezon City Attention: Mr. Enrique C. Linsangan Deputy Chief for Operations Chairman, BFP BAC Gentlemen : This refers to your letter dated August 9, 2006 requesting for clarification regarding the implementation of Executive Order (EO) No. 398 as implemented by Revenue Regulations (RR) Nos. 3-2005 and 10-2006, particularly on the following: 1. When is the effective date of the full implementation of the electronic filing? 2. Whether the EFPS is applicable to single proprietorship, corporation or partnership. 3. Is there a grace period on the implementation of said EFPS? 4. Can a taxpayer who has not filed electronically but religiously pay its taxes, its returns duly stamped and received by the BIR and has its respective tax clearances, qualify to bid? It is represented that the Bureau of Fire Protection (BFP) Bids and Awards Committee (BAC) is in the process of procuring firefighting gloves for its personnel in the operating field units; that the scheduled date of submission of bid proposal is August 17, 2006; that the pre-bid conference of the said procurement was held last August 7, 2006 at its National Headquarters; and that several bidders raised questions concerning the mandatory filing of income and business tax returns and other required information using the Electronic Filing and Payment System (EFPS). We reply, as follows: 1. Executive Order No. 398, directing the timely and complete payment of taxes as a precondition for entering into, and as a continuing obligation in contracts with the government, its departments, agencies and instrumentalities, was signed on January 12, 2005. It was implemented by RR No. 3-2005 which took effect after fifteen (15) days from February 19, 2005 which is the date of its publication in Manila Standard. Hence, on March 6, 2006, the rules and regulations embodied in RR 3-2005 became effective. 2. Section 1 of E.O. 398 requires that all persons, natural or juridical, whether local or foreign, who desire to enter into or participate in any contract with the government, its departments, bureaus, offices and agencies, including state universities and colleges, government-owned and/or controlled corporations, government financial institutions and local government units, shall, as a pre-condition, submit along with their proposal and/or bid, a copy of their latest income and business tax returns duly stamped and received by the Bureau of Internal Revenue (BIR), and duly validated with the tax payment made thereon. SACTIH In relation thereto, Section 4.1 of RR 3-2005 provides that Effective April 1, 2005, all prospective participants to any government procurement of goods and services are mandated to file their income and business tax returns and other required information electronically using the EFPS. From the provisions of E.O. 398 and RR 3-2005, as aforementioned, it is clear that that all persons, natural or juridical, and all prospective participants to any government procurement of goods and services are mandated to comply with the EFPS, which indubitably includes single proprietorship, corporation and partnership. 3. Section 4.2.2 of RR 3-2005, provides for an interim procedure in complying with the EFPS, to wit: "From the effectivity of these Regulations up to April 30, 2005, Non-EFPS filed tax returns and payment documents may be submitted as compliance to paragraph 2.1. Provided that these documents must first be presented to the Revenue District Office with jurisdiction over the taxpayer for authenticity check and stamping." Hence, all prospective participants in the government procurement of goods and services can still comply with the mandate of EO 398 and RR 3-2005 but only until April 30, 2005. 4. In implementing the provisions of E.O. 398, Section 4.1 of Revenue Regulations (RR) No. 3-2005. specifically mandates all prospective participants to any government procurement of goods and services to file their income and business tax returns and other required information electronically using the EFPS. It is significant to note, however, that the main thrust of E.O. 398 in requiring all participants and bidders of government projects to submit their tax returns is to prevent delinquent taxpayers/participants/bidders from entering into any contract with the government. The main thrust of RR 3-2005 is to require all government bidders to be EFPS registered so that the BIR can effectively monitor their tax payments. 5. We would like to emphasize that clearly RR 3-2005 requires that bidders for government projects must be EFPS registered prior to the time of the bidding and that EFPS registration should form part of the eligibility requirements for the bidding. However, RR 3-2005 does not address the situation where a bidder is a new registrant under the EFPS and consequently, will not be able to comply with the requirement under Sec. 4.2.1 in relation to Sec. 3.3 which provides that only EFPS returns for the last six months of operations may be accepted as required submission under Sec. 1 of EO 398. We recognize that to disqualify new EFPS registrants (less than six months) who simply cannot submit EFPS returns (but have manual returns to prove previous tax payments) would be detrimental to the government since the number of bidders may be unduly limited. Thus, in case the bidder has just registered under the EFPS (less than 6 months prior to the time of bidding), then necessarily non-EFPS or manual returns may be submitted as proof of timely and complete payment of VAT/Percentage Tax for the months prior to the EFPS registration. If the bidder has already been registered under the EFPS for six months or more, prior to the time of the bidding, then only EFPS returns may be submitted and accepted. Lastly, the Bidding Committee should adopt/incorporate the above rule in the bid documents after due deliberation and resolution. Please be guided accordingly. DSCIEa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service