'It's just a book, my friend!' - said no one ever
By Ken John Asadon
"REGISTER, File and Pay," a tax campaign theme launched by the Bureau of Internal Revenue (BIR) way back in 2014 in order to increase the awareness and stress the importance of paying taxes by incorporating concepts of patriotism wherein paying taxes are key in making nation-building possible.
One of the most common mistakes of business owners is not securing appropriate sets of books of accounts with the BIR. As a taxpayer, the obligation is not only to register its business but also to religiously maintain its records as well as preserve them within a certain period of time. The BIR has issued guidelines about the preservation of accounting books and records. This article provides an outline regarding the relevant rules and regulations pertinent to the retention of the company's accounting books and records and the corresponding penalty for noncompliance.
Keeping the books of accounts
Taxpayers have the option to maintain their books of accounts in the following manner: (1) manual books of accounts (2) loose-leaf books of accounts (with permit to use) (3) computerized books of accounts (with permit to use). These books of accounts/accounting records shall be kept at all times in the place of the business of the taxpayer and shall be preserved intact, unaltered and unmutilated together with records, vouchers, and other supporting papers and documents prescribed by the BIR. It is prohibited to keep two or more sets of records or books of accounts unless the other sets are already exhausted or used up.All entries in the manual books of accounts shall be handwritten. Printouts of the accounting records pasted/glued/inserted on pages/sheets of the registered manual bound books of accounts are prohibited and subjected to penalty.
Retention period
All taxpayers are required to preserve their books of accounts, including its subsidiary books and other accounting records, for 10 years reckoned from the day following the deadline in filing a return or if filed after the deadline from the date of the filing of the return for the taxable year when the last entry was made in the books of accounts.The 10-year retention period is divided into two phases; hard copies of the books of accounts, including its subsidiary books, and other accounting records must be preserved during the first five years. In the remaining sixth to 10th year, electronic copies of the books of accounts can be maintained. During these years, hard copies are no longer required.
For companies that do their accounting and bookkeeping via online accounting solutions, the same shall apply. Though they use electronic mode of bookkeeping and recording, they must still have and preserve corresponding hard copies for the first five years.
Electronic storage system
The taxpayers must observe the following features of using the electronic storage system:- Ensure a clear, accurate and complete transfer of the images of the hard copy of the books of accounts, including its subsidiary books and other accounting records, to an electronic storage media;
- Index, storage, preserve, retrieve and reproduce the electronically stored images of the hard copy of the books of accounts including its subsidiary books and other accounting records.
Electronic storage of books of accounts must also include the following:
- Reasonable controls to ensure the integrity, accuracy and reliability of the electronic storage system;
- A retrieval system that includes an indexing system
Examination of books of accounts
All taxpayers whose gross annual sales, earnings, receipts or output exceed P3 million, shall have their books of accounts audited and examined yearly by an independent certified public accountant (CPA) and their income tax returns accompanied with a duly accomplished account information form.The independent CPA who audited the books of account and other accounting records of the taxpayer, just as the taxpayer, has the responsibility to maintain and preserve electronic copies of the audited and certified financial statements, including the audit working papers for 10 years, from the due date of filing the annual income tax return or the actual date of filing whichever comes earlier.
Penalties
Failure to comply with the BIR regulations pertinent to the handling of books of accounts and records may be a charge of the following penalties:· Under Section 266 of the National Internal Revenue Code (NIRC), neglect to appear or to produce books of accounts, records, memoranda or other papers or to furnish such information, shall, upon conviction, be punished by a fine of not less than P5,000 but not more than P10,000 and suffer imprisonment of not less than one year but not more than two years.
· Under Section 275 of the NIRC, for a violation of any provision of the NIRC, a fine of not more than P1,000 or imprisonment of not more than six months or both.
· Under Republic Act 10021 ("Exchange of Information on Tax Matters Act of 2009") a willful refusal to supply required documents shall be punished by a fine of not less than P50,000 but not more than P100,000 or imprisonment of not less than two years but not more than five years or both.
· Under Section 232 of the NIRC, failure of not having the books of accounts audited by a CPA duly accredited by the BIR would mean a compromise penalty of up to P25,000. Applicable to those taxpayers whose gross sales/receipts exceeded P3 million.
Another P50,000 compromise penalty is waving for those books of accounts that are not updated.
What's new?
During the pre-pandemic, the BIR issued Revenue Memorandum Circular (RMC) 10-2020, which suspends the issuance of the permit to use (PTU) computerized accounting system (CAS). The implementation of said memorandum was a good development since applying for CAS always takes time.Ever since Republic Act 11032, known as the "Ease of Doing Business and Efficient Government Service Delivery Act of 2018," was signed into law. We experienced numerous streamlining of the government process, especially when transacting with the BIR, but still, some are subject to improvement. The BIR released RMC 5-2021 issued last Jan. 8, 2021, which simplified the policies on the application for registration of CAS, computerized books of accounts (CBA), and/or its components, including the electronic storage system (ESS), middleware and other similar systems (collectively called as "CAS"). Unlike the previous RMC, RMC 5-2021 removed the need to secure a PTU CAS.
Even though BIR removed the PTU CAS, taxpayers still need to undergo the CAS registration process. The RMC 5-2021 still requires the registration of the accounting system. Instead of the system demonstration, a post-evaluation or audit will be conducted by the BIR to check compliance of the registered CAS to standards set under existing rules.
For those with existing PTU CAS, they are not required to apply for registration under RMC 5-2021, except for the following circumstances: (1) Suspension of PTU upon discovery of noncompliance with existing revenue issuances during the conduct of authorized audit activity or post-evaluation, and (2) existence of major system enhancement or upgrade.
Either way, the taxpayers still have the right to choose what will make them feel comfortable as long as they duly secure their books of accounts manually or electronically and preserve their accounting records following the NIRC and the BIR memo issuances. Preservation of books of accounts is in the best interest of both the government and taxpayers. It will help the government ensure that all taxes due to the taxpayer may be accurately ascertained and determined. On the other hand, it will help the taxpayers, especially those that receive regular or extraordinary audits and assessments from the BIR, as defense.
Thus, every taxpayer must have an organized and proper accounting and record-keeping of their business transactions. Being fully informed and well-equipped with knowledge about tax compliance is the taxpayers' best weapon against nonstop penalties that may arise. At the end of the day, "it's just a book" – said no one ever.
Ken John B. Asadon, CPA, CTT is the tax partner of Paguio, Dumayas & Associates, CPAs (PrimeGlobal Philippines),
and a member of the Association of CPAs in Public Practice (Acpapp). The opinion of the writer does not
reflect in any way the opinion of these institutions.
Source: 'It's just a book, my friend!' - said no one ever - Manila Times