Processing of Monthly Percentage Tax Returns (BIR Form 25.021-A)

March 30, 1965 REVENUE MEMORANDUM CIRCULAR NO. 21-65 SUBJECT : Processing of Monthly Percentage Tax Returns (BIR Form 25.021-A) TO : All Internal Revenue Officers and Others Concerned Heretofore, the control in the assessment and collection of business taxes and the investigation thereof for deficiency taxes leave much to be desired to the extent that it is quite possible that there may be taxes both original and deficiency which have not been collected. This problem was partially solved with the issuance of the regulation prescribing the filing of monthly percentage tax returns, the processing of which has not been definitely established due to the lack of procedures issued thereon. The payment of the privilege and graduated fixed taxes and their corresponding investigation also need improvement in order that the bureau may be able to compile a comprehensive list of privilege tax holders and the degree of investigation that may be needed in order to insure that all those liable to pay taxes have paid accordingly. cdta In order to insure a uniform procedure in the processing, control and investigation of privilege and percentage tax returns from the date of payment and filing to their assignment, investigation and reporting, the following procedure is hereby prescribed for the compliance of all concerned: I. Processing of privilege and percentage tax returns. A. Receipt of privilege and percentage tax returns 1. Privilege Tax Return All persons, partnerships, corporations and other entities subject to the payment of privilege and graduated fixed taxes must before payment thereof at the beginning of the year, prepare a form in triplicate in accordance with the form prescribed (Annex 1). The said form should be presented to the Collection Agent of the municipality or city where he has his principal place of business and pay the corresponding fixed and/or graduated tax due thereon. The Collection Agent or any of his subordinates upon receipt of the said privilege tax return must fill up the information required of him, correctly and legibly and stamp the three copies with the office receiving stamp and place his initials thereon. 2. Monthly Percentage Tax Return The monthly percentage tax return (BIR Form No. 25.021-A) which is filed monthly should likewise be prepared and filed in triplicate with the Collection Agent of the municipality or city where the taxpayer has his or its principal place of business. The Collection Agent or any of his subordinates upon receipt of the returns must fill up the information required of him, correctly and legibly and stamp the three copies with the office receiving stamp and place his initials thereon. 3. Triplicate Copy The triplicate copy of the privilege tax return or the monthly percentage tax return should be returned to the taxpayer for his file copy. B. Transmittal 1. Within ten (10) days from the last day of payment of the fixed and percentage taxes, both the original and duplicate copies of the returns with the triplicate copy of the official receipt of payment which should be stapled to the returns, should be transmitted to the Income & Business Tax Branch of the region accompanied by a list of said returns. In case a return has no duplicate, a true copy thereof should be prepared in the Income & Business Tax Branch which must be duly initialed by the Chief of the said Branch. cdti 2. To facilitate checking, the transmittal of the returns should be on the basis of the booklets of official receipts issued, so that all transmittals must be in batches of 50's which corresponds to the number of receipts contained in a booklet. The transmittal should include all returns including those which belong to other regions. 3. Upon receipt of the returns with the corresponding Official receipts of payment from Collection Agents, the Income & Business Tax Branch should check and determine whether there are returns which belong to other regions. Any return which belong to another region should be pulled out of the batch by the Income & Business Tax Branch. The branch should then prepare an out-of-region control sheet (Annex 2) in triplicate for every such return. The original copy of the control sheet should be attached to the triplicate copy of the official receipt; the duplicate copy of the control sheet be attached to the original and duplicate copies of the return and forwarded to the appropriate region; and the triplicate copy of the control sheet should be retained as file copy of the transmitting region. The block should always contain 50 receipts and 50 returns considering that the out-of-region control sheet is the substitute of a return. C. Sorting, numbering and listing 1. Sorting The returns should be sorted monthly in the case of percentage tax returns and annually in the case of fixed tax returns. They should first be segregated by Inspection Districts. The returns should then be arranged in alphabetical order. 2. Numbering In order to facilitate the consolidation and filing of all returns for purposes of comparative study, a permanent number should be assigned to each return which shall include the number of the inspection district and the number of the schedule as follows: (1) Fixed tax returns (2) Schedule A Manufacturer's Sales Tax (Sections 184, 185, 185-A, 185-B and 186) (3) Schedule B Mill Operator's Percentage Tax (Section 189) (4) Schedule C Percentage Tax on Services (Section 191) (5) Schedule D Percentage Tax on Common Carriers and Keepers of Garages (Section 192) (6) Schedule E Percentage Tax on Compensation (Section 195) (7) Multiple schedules (Monthly percentage tax returns containing information in two or more schedules as detailed in the preceding subparagraphs should be classified under this item.) The permanent number of the return should be composed of four (4) column numbers as follows: a. The first column number should refer to the inspection district which has jurisdiction over the return. b. The second column number should refer to the schedule to which the return falls in accordance with the schedules listed in the preceding paragraph. c. The first digit of the third column number, which is the actual number of the return refers to the regional office. The successive digits represent the serial number of the return. d. The fourth column number represents the year of the return. EXAMPLE: Thus, a return for January, 1965 filed by a taxpayer in Sta. Cruz who is engage in the manufacture of articles subject to tax under section 186 of the National Internal Revenue Code will have this number 23-2-500001-65. (1) The first column 23 refers to the inspection district which has jurisdiction over the return. (2) The second column number 2 refers to the schedule of the business where the taxpayer is engaged in. (3) The first digit of the third column number 5 of 500001 refers to Regional Office No. 5, the region which has jurisdiction over the inspection district. The last digit 1 is the serial number of the return. (4) The last column number 65 refers to the year of the return. The number of the return should likewise be written or stamped at the back of the triplicate copy of official receipt. 3. Listing After the returns have been numbered, the originals should be segregated from the duplicates. The returns of one taxpayer for six months in one semester should be put together in a folder as they are filed monthly, the duplicates separate from the originals. At the end of the semester the six (6) returns of each taxpayer should be stapled together. The originals should be blocked into bundles of returns of one hundred taxpayer to a block. Each block should be covered by a block control sheet which should be prepared in duplicate. The original of the block sheet should be attached to the original copies of returns; the duplicate should be kept in the branch for its file. LibLex The original returns as blocked should be forwarded to the Data Processing Branch for coding preparatory to forwarding them to the Data Processing Center in the National Office. Percentage tax returns should be listed in the Data Processing Center semestrally and the fixed taxed returns annually for those paying annually and semi-annually for those electing to pay in two installments. The listing should be strictly alphabetical and should show the following data: Percentage Tax Return (1) Name and Address of taxpayer. Business names and/or styles should also be listed if shown in the return. (2) Taxable sales or receipts. (3) Assessment number. (4) Amount paid, date of payment and official receipt number. Fixed Tax Returns Including C-13 & C-14 (Importers) Returns (1) Name and address of the taxpayer. The business names and/or styles should also be listed if shown in the return. (2) Assessment number (3) Amount paid, date of payment and official receipt number. (4) Gross sales for preceding year if the fixed tax paid was C-13. The Chief of the Data Processing Center should return the said returns to the Regional Director concerned together with the listing of such returns and tax receipts in three copies as soon as possible. II. Distribution of percentage tax, C-13 and C-14 (Importers) privilege tax. As soon as the processing of the returns is finished and the originals thereof have already been sent to the Data Processing Branch, the duplicate copies of the returns may be forwarded to Chief Revenue Officers for investigation. No investigation should be conducted earlier than January 20th and July 20th of each year and the percentage tax returns should be assigned and distributed for investigation on a six (6) months basis while the fixed tax returns should be distributed for investigation on an annual basis. All the returns should be distributed to the corresponding Chief Revenue Officers except those returns which may be under investigation in the National Office or those which the Regional Director may determine as needing special investigation by selected men in the inspection district who may either be a Group Supervisor or a Class A examiner as the case may be. The Regional Director, however, need not create a special team to investigate these special cases and the investigation should be confined within the inspection district to be conducted by fieldmen thereat with exceptional abilities and experience in the nature of the investigation to be conducted. In order to prevent clogging of the returns in the hands of examiners, the Regional Director must see to it that the number of returns forwarded to the Chief Revenue Officer for distribution must not exceed an average of ten (10) taxpayers at any one time and the latter should see to it that no examiner should have more than twenty (20) cases at any time including dockets in his possession. To distribute equitably the returns among the examiners in their respective inspection district, the following procedure should be followed in the distribution: The number of examiners to be assigned to the investigation of business taxes for each inspection district as well as the number of returns for distribution should be determined. Each examiner should receive an equal number of returns. As far as practicable the returns should be evenly and fairly classified as to schedule in the case of percentage tax returns and on the volume of sales in the case of C-13 and C-14 (importers) tax returns. The returns forwarded by the Chief, Income & Business Tax Branch to the Chief Revenue Officer should always be exact to the number of examiners that will be assigned to investigate said returns and at no time should there be an excess of undistributed returns in the hands of the Chief Revenue Officer. cdt In every distribution, the Chief Revenue Officer shall see to it that the returns are bundled into as many examiners to be assigned to investigate said returns in the inspection district. A listing of the returns bundled should be made showing the name and the assessment number of the return, which list should be attached to the bundle and placed in a folder without identification. The group supervisor if there are supervisors in the district should be asked to pick a folder without selection for each of the examiners in his group that are assigned to investigate business' tax returns. Upon receipt of the folder the group supervisor should acknowledge the receipt thereof by signing the four (4) copies of the list attached to the return. The quadruplicate should be detached by the group supervisor as his file and the remaining three (3) copies should be returned to the Chief Revenue Officer. The Chief Revenue Officer should keep the triplicate copy of the list while the original and duplicate copies should be forwarded to the Income & Business Tax Branch. The Group Supervisor should record the returns in his book and make the necessary assignment to his examiners. The returns assigned should be forwarded to the Chief Revenue Officers who will prepare the corresponding authority to investigate and the examination record card, sample attached (Annex 3). In case there are no group supervisors in the district, the returns should be given direct to the examiner concerned without, however, selecting the particular folder to be given to the examiner. The acknowledgment and listing of the returns as well as the distribution of the list attached thereto should follow the same procedure as if the examiner concerned is the group supervisor. III. Issuance of letters of authority A. Officials authorized to issue the authority to investigate . In the issuance of letters of authority, paragraph 3 of Field Circular No. 157 as amended by Revenue Memorandum Circular No. 22-64 should be followed. Letters of Authority to investigate should be issued only by the following officials: 1. The Chief Revenue Officers of the Inspection District for the fieldmen in the district. 2. For the fieldmen of inspection districts under the jurisdiction of Regional Offices Nos. 4, 5 and 6 the procedure outlined in Paragraph III-C of this memorandum circular should be followed in the issuance of the authorities to investigate for business tax purposes. B. Preparation of authority The authority to investigate should be carefully prepared and erasures should be avoided as much as possible particularly the name, address of the taxpayer to be investigated and the period involved. A new one should be prepared if it becomes necessary to make erasures in the authority. The period covered by the authority to investigate should be definite and phrases "last five years", "1959 and up" or "1962 and previous years" should be avoided in order that confusion in the examination may be eliminated. C. Procedure in Regional Offices Nos. 4, 5 and 6 Inspection District Nos. 16 (Bulacan) and 17 (Cavite) of Regional Office No. 4 and Inspection District Nos. 26 (Occidental Mindoro) and 27 Palawan) of Regional Office No. 6 are not covered by the procedure to be promulgated under this sub-paragraph. The procedure outlined in sub-paragraph III-D should be followed in the above-mentioned districts. In the preparation of the authority to investigate, the Chief Revenue Officer should not put the date. The date of the authority should be placed by the Income & Business Tax Branch upon release from the said Branch. In order to insure an effective control of all authorities to investigate, all Chief Revenue Officers concerned are hereby instructed to forward all copies of authorities to investigate which have been cancelled to the Income & Business Tax Branch. The cancelled authorities to investigate must likewise be recorded in the Authority Register and kept in a separate file by the Income & Business Tax Branch. The return, the authority to investigate and the examination record card should be forwarded to the Income & Business Tax Branch after signature by the Chief Revenue Officer. The Chief of the Income & Business Tax Branch should record in the Authority Register the name of the taxpayer, the address, the authority number to whom assigned, after which the authorities should be forwarded to the Regional Director for his signature. For a proper recording of authorities to investigate, the Regional Director should not sign the authority unless he is sure that it has been processed in the Income & Business Tax Branch. cdll The Regional Director after signing the authority to investigate should return the same to the Income & Business Tax Branch for dating and release: The Regional Director's copy of the Authority should be detached and filed at the Income & Business Tax Branch. The date of the authority and the date of release should then be recorded in the authority register. After the entries have been made in the register, the papers should be forwarded to the Chief Revenue Officer. The Chief Revenue Officer upon receipt of the duly signed authority to investigate should immediately forward the papers to the Group Supervisor concerned after detaching his copy of the authority. The latter should immediately transmit the papers to the examiner to whom the return has been assigned. The examiner should then proceed with the investigation and he should be governed by the rules and regulations with respect to the auditing techniques to be employed, the period within which to serve the authority to investigate and the period within which to finish his investigation and submit his report thereon which are covered by separate memorandum orders. D. Procedure in other Regional Offices and Inspection Districts. The authority to investigate should be prepared by the Chief Revenue Officer of the district. In preparing the authority to investigate the examination record card should be simultaneously prepared placing therein all the information that may be available from the face of the return. After signature by the Chief Revenue Officer of the authority to investigate, all the necessary information required in the Authority Register should be entered therein and for this purpose Chief Revenue Officers are required to keep separate registers for business and for income taxes. He should likewise issue an authority to investigate for every case assigned to the fieldmen including dockets and C-13 cases. After the authorities have been duly signed and entered in the authority register, the original and duplicate copies thereof should be forwarded to the examiner concerned and the triplicate copy of the authority should be forwarded to the Income & Business Tax Branch for file. The examiner should then proceed with the investigation of the case and he should be governed by the rules and regulations with respect to the technical phase, the period within which to serve the authority to investigate and the period within which to finish his investigation and submit his report thereon which are covered by separate memorandum orders. In case an authority is cancelled, all the copies thereof must be preserved and filed separately and should likewise be entered in the Authority Register. IV. Processing and review of reports of investigations and completion of the examination record card. When the report is submitted to the Group Supervisor, he should review it thoroughly to see to it that the report complies with the requirements of the Manual on Audit and Investigation Procedures with respect to notices to taxpayers, informal conferences, etc. If he believes that the report is in order the same should be forwarded to the Chief Revenue Officer who should likewise review it and if satisfied, should be forwarded to the Income & Business Tax Branch for processing. The Group Supervisor and Chief Revenue Officer should not keep the report in their possession for more than sixty (60) days. llcd If there is no grouping of fieldmen in the district, the report should be forwarded direct to the Chief Revenue Officer. The latter should follow the same procedure in processing the report as provided in the preceding paragraph. After processing and review of the report, the letter of demand should be prepared and forwarded to the Regional Director or Assistant Regional Director as the case may be for signature and approval of the field audit report. If the case contains no discrepancy or deficiency assessment, the report should nevertheless be forwarded to the Regional Director or Assistant Director for approval of the report. As soon as the Regional Director or Assistant Regional Director has signed the letter of demand and/or approved the report, the report should be forwarded to the Income & Business Tax Branch for recording in the Authority Register of the following information: a) Date of submission of the report. b) Taxable receipts per investigation. c) Deficiency tax per investigation. d) Beginning and ending inventories of deductible raw materials of taxpayers under Sch. "A"; beginning and ending inventories of stock or goods of tax payers subject to C-13 privilege tax receipts and those falling under Sch. "C". e) Date of release of letter of demand. The preceding paragraphs detailing the procedure to be followed in processing the report and the preparation and release of the letter of demand should be followed subject to the limitations provided for by Revenue Administrative Order No. 14-64. To have a close check of the authorities and returns investigated, the Income & Business Tax Branch should utilize the "D" copy of the examination record card. The cards should be filed alphabetically so that at any time information is needed regarding the taxpayer being investigated it can easily be secured. Once a report has been submitted the card should be pulled out from the outstanding file and placed in a separate file called reported file. When the report has been approved and the letter of demand is released or the docket is transmitted to the administrative Branch for file since there is no deficiency tax due, the card should be removed from the reported file and placed in the closed file. The "C" copy of the card detached in the Income & Business Tax Branch should be kept in the said branch to be forwarded later to the Data Processing Center for punching of statistical data after which the information card should be returned to the branch. The branch should assign a clerk for each revenue inspection district under the jurisdiction of the regional office to take care of the Authority Register, the file copies of the Authority to investigate, and the examination record card file. V. Semestral period of investigation and jurisdiction Except the investigation of the C-13 privilege taxes which by its very nature should be undertaken annually, the investigation of business taxes should be undertaken semestrally, that is, from January 1 to June 30, and from July 1 to December 31 of a certain year. Letters of authority, therefore, should only be issued to cover only such periods. In the event that a taxpayer has been verified to have not been investigated for previous periods, another letter of authority to cover such uninvestigated periods may be issued. In order to avoid confusion in the investigation all authorities to investigate pending in the hands of examiners which have been served but not yet reported or those which have not yet been served should be surrendered to the Chief Revenue Officer. The Chief Revenue Officer should prepare a new authority to the same examiner using the new form. In case of conflict of jurisdiction or assignment, the Regional Director or the Chief Revenue Officer as the case may be is given the discretion to reassign the return to the inspection district or examiner who has jurisdiction over the taxpayer. Dockets assigned to examiners should also be issued the corresponding authority to investigate and should be processed in the same manner as original investigations. For purposes of determining the district which has jurisdiction over the taxpayer, the place of business of the taxpayers as registered in the Securities and Exchange Commission and where the books of accounts are kept should be the determining factor. If the books of accounts are kept other than in the main office, the basis of the issuance of the authority is the location of the main office. If the factory or branch is located in other inspection districts other than the districts where the main office of the taxpayer is located, the jurisdiction for investigation purposes remains with the district where the main office is and the books of accounts are kept. Subsidiary books and factory records kept in the branches or in factories will not change the jurisdiction of the taxpayer if the factory or the branch is not the main office of the business and the place where the books of accounts are kept. The keeping of books of accounts in the office of the accountant, auditor or business agent is a violation of the bookkeeping regulations and the address of the accountant or business agent should not be made the basis of determining the inspection district who has jurisdiction over the taxpayer. The provisions of this Revenue Memorandum Circular shall take effect immediately. (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue ANNEX-1 Republic of the Philippines Department of Finance BUREAU OF INTERNAL REVENUE Regional Office No. ___ Inspection District No. ___ ___________________ Office of the Revenue Collector __________________ __________________ City/Town Province New Schedule ________ Paragraph _____ Renewal Name of Taxpayer _____________________________________________________ Address _____________________________________________________________ Registered Trade Name _________________________________________________ __________________________________________________ Revenue Collector: Please collect the following revenue payments for the taxable period from _____________ to _________________________. Fixed tax P ______________ ______________ ______________ ______________ ______________ Compromise ______________ Total ______________ Remarks _____________________________________________________________ ____________________________________________________________________ I hereby certify to the correctness of the above statements. _______________________________ Sig. of Taxpayer, Agent, or representative SUBSCRIBED AND SWORN to before me this ______ day of _________ 196___; affiant exhibited his/her Res. Cert. No. A-______________________ issued at __________ on ___________________, 196___. Payment reviewed by: ___________________ Revenue Collector ________________ Signature _______________ Date Stamp Official Receipt No. ________________ Date of Payment __________________ Amount Paid _____________________ ANNEX-2 ANNEX-3