2012 VAT Audit Program

The Bureau of Internal Revenue (BIR) has set the following policies and guidelines governing the conduct of audit/investigation of value-added tax (VAT) taxpayers for 2012:

Selection criteria

The following criteria shall be used for selecting VAT taxpayers as candidate for audit and investigation.

1. Taxpayers whose VAT compliance is below the 2010 or 2011 industry benchmarks

2. Taxpayers whose VAT returns for the succeeding quarters show a substantial decrease in tax payment

3. Taxpayers whose VAT returns reflect substantial input taxes from importations and local purchases, such as when the total purchases claimed exceed 75% of the total sales

4. Taxpayers with no VAT return filed in any quarter or all of the quarters in 2011

5. Taxpayers who are reporting/filing “no operations” returns

6. Taxpayers with history of declaring excess input tax carry over for all the quarters of 2011

7. Taxpayers who have not submitted their Summary List of Sales (SLS) or Purchases (SLP) for any of the quarters of 2011

8. Taxpayers with substantial sales but showing net loss

9. Taxpayers identified to have significant under-declaration of sales as a result of Tax Compliance Verification Drive and/or other programs

10. Taxpayers filing exempt VAT returns due to availment of tax incentives or tax exemptions

11. Other taxpayers selected by the head of the VAT Audit Team subject to the approval of the Regional Director

VAT returns involving tax credit/refund claims and those selected for audit by the National Investigation Division (NID) and Special Investigation Division (SID) of Revenue Regional Offices shall be excluded from the coverage of the VAT audit program.

Audit policies and procedures

The VAT audit program shall be implemented in September 2012 with the following revenue regions as pilot areas:

• Revenue Region No. 5 - Caloocan

• Revenue Region No. 6 - Manila, excluding taxpayers under Revenue District Office (RDO) Nos. 35 (Romblon, Romblon), 36 (Puerto Princesa City, Palawan) and 37 (San Jose, Occidental Mindoro)

• Revenue Region 7 - Quezon City

• Revenue Region 8 - Makati City

One VAT Audit Team will be created in each pilot region, and this team shall be responsible for conducting the audit and investigation of VAT returns. The VAT Audit Team shall be composed of 25 Revenue Officers (RO) to be headed by the Chief of the Assessment Division.

The VAT Audit Head shall be responsible for preparing the list of tax returns/taxpayers to be audited for the first two quarters of 2012 based on the selection criteria and for submitting such list for approval of the Regional Director (RD).

The list may be subject to review and evaluation of the Associate Commissioner of Internal Revenue (ACIR) - Assessment Service (AS) to determine compliance with the guidelines set in the selection of VAT taxpayers for audit and in distribution of cases.

One electronic letter of authority (eLA) shall be issued for each taxable quarter or for two quarters by the RD. The initial workload of each RO shall be 20 cases, subject to replenishment every after submission of report of investigation/closure of each case. The basic audit procedures prescribed in Revenue Audit Memorandum Order (RAMO) 1-99 shall be observed.

If the taxpayer was previously selected in the RDO for regular audit of all internal revenue tax liabilities in 2011 or any prior year, significant findings on the audit of VAT should be communicated to the Chief-Assessment Division for possible risk identification in the current quarters.

If an eLA has been issued under the VAT audit program and, subsequently, the taxpayer becomes a candidate for regular audit in the RDO based on the selection criteria under the annual audit program, the request for eLA for regular audit should not include the VAT liability.

In case there are deficiency VAT liabilities as a result of audit, the Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN) will be issued in accordance with existing regulations.

(Revenue Memorandum Order No. 20-2012, September 5, 2012)

Tax Brief – October 2012

Punongbayan and Araullo