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Taxation
VAT audit checklist for
non-large taxpayers
By Joanna Grace P. Manuel
After the end of a taxable year, especially
after filing the annual income tax return,
taxpayers are usually anxious to check
their compliance based on the filed tax
returns. This year, because of the mandatory
disclosure of the details of paid taxes
in audited financial statements, it has
become easier for taxpayers to check their
compliance with tax regulations. One can
easily check if a company will receive a
Letter of Authority (LA) from the Bureau
of Internal Revenue (BIR) by comparing its
records of sales/expenses to its filed tax
returns. This is precisely how the BIR will
determine the list of taxpayers that shall
undergo value-added tax (VAT) audit for
2012.
The BIR has recently issued Revenue
Memorandum Order No. (RMO) 20-2012
for the VAT audit program which would be
piloted for taxpayers under revenue regions
of Caloocan, Manila, Quezon City and
Makati for the pilot roll-out. The program
aims to:
• increase collection and enhance
voluntary compliance by focusing on
quality audit of VAT returns;
• broaden the tax base by identifying
buyers and sellers of goods and services
subject to VAT and
• provide audit trail for transactions of
VAT taxpayers.
The taxpayers will be selected based on the
following criteria:
• VAT compliance is below the
established 2010 or 2011 industry
benchmarks;
• VAT returns for the succeeding
quarters show a substantial decrease in
tax payment;
• VAT returns reflect substantial input
taxes from importations and local
purchases, such as when the total
purchases claimed exceed 75% of the
total sales;
• no VAT return filed in any quarter or all
of the quarters in 2011;
• VAT returns reported as “No
operations” wherein ocular inspection
will be conducted to verify whether the
business exists;
• taxpayers with a history of declaring
excess input tax carry over for all
quarters of 2011;
• Non-submission of summary list of
sales and purchases for any of the
quarters in 2011;
• substantial sales but showing net loss;
• significant under declaration of
sales uncovered as a result of the Tax
Compliance Verification Drive and/or
other programs;
• those with declared exempt sales due
to the availment of tax incentives or tax
exemptions and
• other taxpayers selected by the
head of the VAT audit team subject to
approval by the regional director.
The selection will be performed by a VAT
audit team (one team per revenue region),
which is composed of at least 25 Revenue
Officers -- Assessment including Group
Supervisors who is headed by the Chief
of the Assessment Division. Authorization
to conduct the audit will be given only to
the VAT audit team. The team will submit
a list of taxpayers to be audited for the
first two quarters to the regional director
for approval with markings on which
selection criteria each taxpayer is qualified
in. For qualified taxpayers, the LA will be
issued for each taxable quarter or for two
quarters through the recommendation of
the VAT audit head.
If the selected taxpayer has been
previously selected in the Revenue
District Office (RDO) for regular audit
of all internal revenue taxes in 2011 or
any prior year, significant findings on the
audit of VAT is to be communicated to
the Chief -- Assessment Division for risk
identification. On the other hand, if the
LA for the VAT audit and subsequently the
taxpayers becomes a candidate for regular
audit in the RDO based on the selection
criteria under the annual audit program,
the request for LA for regular audit should
not include the VAT liability. In this case,
the VAT audit team should transmit a
copy of the VAT audit findings to the RDO
conducting the regular audit to determine
their relevance and effect to other tax
liabilities.
All the basic audit procedures for VAT
audit prescribed in different Revenue Audit
Memorandum Orders are to be strictly
observed by the revenue officers involved
in the audit. Regular audit procedures, such
as understanding the nature of the business
through observation and interviews, are
also to be undertaken by the BIR. Included
in the procedures is the sampling and cross
checking of the details of sales/output
tax and purchases/input tax against the
books and records of the buyer and seller/
supplier. This is the normal audit procedure
conducted by the BIR in coming up with
computation of tax deficiencies wherein a
comparison is made between the amounts
declared per tax returns and the amounts
recorded in the taxpayer’s books of
accounts.
Although one of the criteria for being
included in the list of taxpayers to be
audited is the non-submission of summary
list, taxpayers who failed to submit
summary lists will still be required by the
Revenue District Office to submit diskettes
or hard copies containing the information
on their suppliers and buyers for the 1st
and 2nd quarter of 2012.
The same with the regular audit, the VAT
audit cases may also be referred to Legal
Division for the issuance of Subpoena
Duces Tecum for failure to submit
documents, issuance of legal opinion for
difficult legal issues, or for filing or criminal
action.
With the release of the VAT audit
program, the BIR underscores the key
role of tax compliance in avoiding tax
assessments. Accordingly, taxpayers
should check their VAT compliance
by reviewing the returns filed so they
could determine the necessary course
of action.
Source: Punongbayan & Araullo (P&A).
P&A is an audit, tax and advisory services
firm and is the Philippine member of Grant
Thornton International Ltd. Website:
www.punongbayan-araullo.com
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