BIR issues guidelines on deducting expenses, reporting income

The Bureau of Internal Revenue (BIR) has issued new guidelines on deducting expenses and reporting income to avoid the practice of taxpayers' deducting expenses to reduce the amount of taxes they have to pay.

According to Finance Secretary Cesar Purisima, Revenue Memorandum Circulars 89-2012 and 16-2013 are a response to  taxpayers with “evidence of questionable payments.”

“Businesses, professionals, and the self-employed have historically been poor taxpayers because many of them deduct expenses and record income illegitimately. With these RMCs we want to make it very clear that we will not let them use out-of-pocket expenses as a way to cheat on their taxes,” Purisima said Thursday.

RMC 89-2012, which was issued in December 2012, provides directives for the treatment of deposits and advances made to General Professional Partnerships.

RMC 16-2013, issued on February 15, outlines policies on deposits, advances and expense deductions for all other taxpayers.

The RMCs require taxpayers to immediately issue an official receipt whenever they receive a deposit or advance from a client. The amount shall be recorded as income and will be subject to value-added tax or percentage tax.

“The client who made the payment may deduct the same as an expense, provided an OR was issued in the client’s name for the said payment,” said the bureau.

The RMCs also require clients making deposits or advances to withhold the correct expanded withholding tax and remit it within the prescribed periods set by the BIR.

Purisima said the RMCs are necessary to augment revenues.

“If we can improve compliance through guidelines like these RMCs, we can raise our tax revenue substantially without raising tax rates,” he said.

The BIR's collection target for the year is set at P1.253 trillion this year. In 2012, its total collection of P1.057 trillion was just slightly below its goal of P1.066 trillion. — BM, GMA News