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Bureau of Internal Revenue to lose P6 billion due to optional deduction


By Iris C. Gonzales (The Philippine Star) Updated March 12, 2010 12:00 AM

MANILA, Philippines - The Bureau of Internal Revenue (BIR) expects to lose up to P6 billion this year from the Optional Standard Deduction privilege allowed under RA 9504 or the Minimum Wage Law.

OSD allows corporations and individuals a 40-percent maximum deduction on gross sales or gross receipts in the case of self-employed and professionals and a standard deduction of not more than 40 percent on gross income for corporations. The deduction would result in a reduction in income tax obligations to the BIR.

The system was put in place, supposedly to simplify the filing of income-tax returns and benefits for professionals and micro, small and medium entrepreneurs. It was also designed to encourage businesses in the underground economy to pay taxes.

However, according to the BIR, the revenue losses of P6 billion would leave a huge dent on state coffers. As such, the BIR is pushing for an amendment in the reduction of OSD for corporations from 40 percent to 10 percent.

The P6 billion estimated foregone revenue is higher than the previous estimate of P4.1 billion.

As part of the implementation of the OSD provision, the BIR issued Revenue Memorandum Circular 16-2010 to remind taxpayers of the requirement to disclose their option to avail of the 40 percent OSD provision for taxable year 2009 which is due to be filed or paid for this year.

BIR Commissioner Joel Tan-Torres said that if the taxpayer decides to use OSD it should be used for the succeeding quarterly returns and in the final ITR for the taxable year. The decision to avail of the OSD as signified in the return shall be irrevocable for the taxable year 2009, he also said.

He also said that taxpayers who choose to avail of the OSD are required to indicate whether they are adopting a calendar or fiscal period. Furthermore, Tan said, failure to indicate the decision to use OSD would be considered as having availed of the Itemized Deduction or the other option in computing gross sales and receipts.

Newly-registered taxpayers should also disclose their election to avail of the OSD in their initial quarterly income tax return which is required to be filed for the taxable year 2009.

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KNOWING YOUR BIR REGULATIONS AND ISSUANCES

Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes

Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.

Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.

BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.
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