MANILA,Philippines - The Bureau of Internal Revenue (BIR) has issued new guidelines on proper expense deductions and booking of income.
Finance Secretary Cesar Purisima hopes the guidelines will deter tax evaders from cheating on out-of-pocket expenses.
BIR's Revenue Memorandum Circular (RMC) No. 89-2012 and RMC No. 16-2013 (dated February 15) set the rules on tax implications of deposits/advances and the recording of out-of-pocket expenses.
"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 in a statement.
RMC No. 89-2012 provides rules for the treatment of deposits/advances made to general professional partnerships.
On the other hand, RMC 16-2013 sets the policies on deposits/advances and expense deductions for all other taxpayers.
The rules reiterate that whenever a general partnershipor taxpayer receives a deposit or advance from a client, the taxpayer is required to immediately issue an official receipt for said payment.
The amount received shall be recorded as income and shall be subject to value-added tax or percentage tax, as the case may be.
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.
"If we can improve compliance through guidelines like these RMCs, we can raise our tax revenue substantially without raising tax rates,” Purisima said.
The revenue circulars also state that a client making a deposit/advance should already withhold the appropriate expanded withholding tax and remit these within the prescribed periods.