House Bill No. 4157 or the Accumulated Assets Tax and Incentives Rationalization Act (CITIRA) is on its way to the Senate afterwards actuality accustomed on third account in the House of Representatives.
Of the changes alien by this Bill — accepted additionally as Package 2 of the TRAIN Law — one that would be of absorption to abounding taxpayers is the alteration on Optional Standard Deductions (OSD). The CITIRA Bill proposes to alter the OSD in two ways: (1) change the OSD abject for individuals from gross acquirement to gross income, and (2) absolute the availability of OSD on corporations to those classified as Micro, Small, and Average Enterprises, or MSMEs.
Currently, all taxpayers, whether individuals or corporations, accountable to the approved assets tax are accustomed to account of OSD. CITIRA, however, apology this. It retains the accomplishment of all alone taxpayers, but has provided added requirements for corporations, i.e., accumulated taxpayers charge be classified as MSMEs, as bent by the Department of Trade and Industry (DTI).
On the added hand, the change in the abject of the 40% OSD to gross assets puts both alone and accumulated taxpayers on the aforementioned footing.
How will these proposed changes affect us?
Under accepted tax law, OSD gives the aborigine a best of accretion for tax-deductible costs at 40% of gross sales or receipts, if the aborigine is an individual, or on gross income, if a corporation. This is in lieu of itemizing costs to be claimed as tax deductions.
A best of OSD agency beneath assignment back it does abroad with the advertisement of costs and the assurance of whether these costs are accustomed deductions of income. Each blazon of bulk has its own elements to be accustomed deductions in accretion net assets accountable to tax. And because there is no charge to account bottomward the deductions made, the law does not crave the adapter of audited banking statements to the assets tax acknowledgment in the case of individuals.
A best of OSD additionally allowances the Bureau of Internal Acquirement (BIR) in analytical the books of taxpayers. Because there is no charge to analysis the expenditures covered by the OSD, examiners can focus on the apparatus of the gross acquirement or gross assets and actuate its abyss and accuracy. In this way, the analysis may be completed sooner, and examiners can additionally access the cardinal of taxpayers they can review.
Despite the allowances of application OSD, the cardinal of taxpayers availing of the adjustment is still low. Alone 22% of individuals affianced in business chose OSD. A college availment bulk of 38% was recorded amid taxpayers practicing a profession.
The OSD of 40% for individuals is currently actuality activated on gross sales or receipts to get the tax due. Based on Acquirement Regulations (RR) No. 16-08, “gross sales” and “gross receipts” affect to absolute sales or receipts becoming by an commodity in a taxable aeon afterwards deducting the bulk of the sales or services. To account from tax accumulation beneath the OSD, a aborigine charge accept a accumulation allowance of added than 60%. Hence, taxpayers with abundant abate accumulation margins, usually those affianced in trading or manufacturing, will not accept OSD.
On the added hand, “gross income” is the net bulk of gross sales or receipts afterwards deducting sales returns, discounts, allowances, and bulk of appurtenances awash or casework provided, area the bulk of appurtenances awash includes the acquirement amount or the bulk to aftermath the merchandise, such as absolute activity cost, and all costs anon incurred in bringing the appurtenances to their present area and the use of which could accommodate acceptation duties, freight, and insurance.
Gross assets as the OSD abject should be fairer and added favorable to alone taxpayers because they can abstract their bulk of appurtenances awash and bulk of service. The OSD will aloof be in lieu of authoritative and added non-operating expenses.
Will the numbers decidedly change for corporations?
Based on the Magna Carta for MSMEs, MSMEs are primarily authentic based on their absolute assets, across-the-board of those arising from loans, but absolute of the acreage on which the accurate business entity’s office, plant, and accessories are situated. They charge accept amount falling beneath the afterward categories: micro (not added than P3 million); baby (P3,000,001 to P15 million); and average (P15,000,001 to P100 million).
Based on the Philippine Statistics Authority (PSA), 924,724 business enterprises were operating in the Philippines in 2017, and of this, 99.56% are MSMEs.
Given these, the CITIRA Bill, in accouterment the advantage for the MSME area to account of the OSD, is advancement the cold of the government to promote, support, strengthen and animate the advance and development of MSMEs by advancement a accessory business ambiance in the anatomy of a answer advantage favorable to them in a accustomed taxable year.
Meanwhile, based on the aloft definition, corporations accepting assets admired at added than P100 actor will accept no best but to catalog their costs claimed as deductions adjoin income. These ample enterprises comprise alone 0.44% or aloof about 4,000 out of the absolute registered business enterprises.
In all cases, taxpayers charge be alert in appliance their appropriate of best because, with all the amendments introduced, Congress retains the accouterment that, already the best has been fabricated and was adumbrated in the return, the best is certain for the taxable year for which the acknowledgment was made.
Let’s Talk Tax is a account bi-weekly cavalcade of P&A Grant Thornton that aims to accumulate the accessible abreast of assorted developments in taxation. This commodity is not advised to be a acting for competent able advice.
Maria Cecilia Lourdes R. Pilotin is a tax accessory of Tax Advisory & Compliance analysis of P&A Grant Thornton, the Philippine affiliate close of Grant Thornton International Ltd.