4 Major Reasons to Register with the BIR
Friday, March 31, 2023 ꞏ 3 min read
Medtax Solutions, Inc. (2023) | Paul Erik D. Caracas, CPA
The Bureau of Internal Revenue (BIR) is responsible for monitoring taxes, which are in turn used to build the nation. Taxes are collected in various ways. For Doctors, these can be collected both from those who have registered with BIR by acquiring a Certificate of Registration (COR) or Form 2303, and those who have not yet registered. The COR helps both the BIR and Doctors in a way that it clearly establishes the relationship between taxpayer and BIR through the types of taxes that need to be filed, the forms needed to be accomplished, and their respective schedules. For Doctors, the COR clearly outlines the tax payment responsibilities and reporting obligations. This article explores further other major reasons for registering with BIR.
1. It is a Legal Requirement
Registering with the Bureau of Internal Revenue (BIR) by securing the Certificate of Registration or Form 2303 gives doctors the legal rights to operate as professionals aside from the requirements set by your respective Local Government Unit (LGU). All professionals licensed by the Professional Regulations Commission (PRC) are required to register, prior to practicing their profession.
A common misconception is that if you do not have a COR, BIR will not be able to identify your transactions. In reality, whenever a client pays, withholds taxes and issues a Form 2307 or Creditable Tax Withheld at Source, your entity as a taxpayer is already established. Furthermore, tax collections use the Tax Identification Number (TIN) as reference, which are acquired separately from the COR. All taxpayers with COR have a TIN but not everyone who has a TIN has COR. Also, to issue a valid official receipt, this should be registered first with the BIR. You cannot just use and issue a receipt that you bought online or in a bookstore.
Registering with BIR therefore is a legal requirement that needs to be complied with in the due course of your profession.
2. Better Cash Flow
A popular belief that we often hear is that if you have a COR, you pay higher in taxes. This couldn’t be further from the truth. Having a COR and filing your documentary needs properly is better for your overall cash flow. Not registering with BIR and complying with government pronouncements will result in lower cash flow.
First of all, your first Php 250,000 income is not taxable. Whatever tax is withheld can be filed as Tax Credit, which you can use as deduction to your tax dues in the future. Filing for Tax Credit requires two things: (1) a COR and (2) the Form 2307 that will be issued by the client or payor.
Second, not registering with the BIR will result in penalties once discovered by the bureau. This will result in additional cash outflow to you, which can be avoided by simply doing your obligation to register.
Lastly, having a COR allows you the option to avail of an eight percent (8%) tax on your income. With this, you can file a Sworn Declaration to reduce your withholding tax from 10% to only 5%. Without the COR, your tax withheld will remain at 10%. Having a COR therefore saves you 2% in tax obligations.
|WITHOUT COR||WITH COR|
First Php 250,000
10% of your income is taken as withholding tax.
5% or Php 12,500 is withheld. You can file this as Tax Credit.
Php 250,000 to Php 350,000
Up to Php 275,000
10% of your income is taken as withholding tax.
Up to Php 220,000 only
You can opt to pay 8% of your income as taxes
To recap, filing your taxes properly prevents avoidable expenditure and helps you with your cash flow through allowable reduction where your first 250,000 is not taxable, and lower tax rate by opting to pay a flat rate in income taxes of 8%. ***
3. Credit Rating
Credit Rating is important in many commercial transactions these days, which include applying for visa, realty transactions, vehicle acquisition and other large sum transactions. Income Tax Return is part of the requirements of said applications and needed to build your Credit Rating.
4. Required by most Institutions
Most hospitals, companies and other organizations require a COR as part of their internal control. This document gives them the assurance that you can issue valid official receipts which they will be using to claim the expenses paid to you. This also allows them to withhold taxes and subsequently process their remittance to the BIR. Commonly, the COR is required to be submitted within a short period from the start of engagement.
***Applicable to those earning Php 3,000,000
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The information provided in this article is for general informational and educational purposes only and is not intended to serve as legal or tax advice. The contents of this article do not supersede any revenue regulations or pronouncements issued by the Bureau of Internal Revenue (BIR) or any other relevant authorities.
This article contains condensed information, and specific circumstances can vary among doctors or other taxpayers. As such, the content should not be relied upon as a basis for any legal or BIR proceedings, nor should it be considered a substitute for professional tax advice.
Readers are encouraged to consult with a tax professional to address their specific situations and to obtain tailored guidance regarding their tax obligations and compliance. The primary aim of this article is to provide a better understanding of BIR rules and taxation in general, and it should not be used as the sole basis for making decisions related to tax matters.