The Bureau of Internal Revenue (BIR) has recently issued Revenue Memorandum Circular No. 60-2024. This circular provides clarifications and guidance on Section 6 of Revenue Regulations No. 4-2024, specifically focusing on the repeal of Section 34 (K) of the National Internal Revenue Code of 1997.
The Ease of Paying Taxes Act
The amendments introduced by Republic Act No. 11976, otherwise known as the “Ease of Paying Taxes (EOPT) Act”, have brought significant changes to the tax landscape. One of the most notable changes is the repeal of Section 34 (K) of the Tax Code.
Previously, Section 34 (K) stated that any amount paid or payable, which is otherwise deductible from gross income or for which depreciation or amortization may be allowed, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue.
The Implications of the Repeal
With the repeal of this provision under the EOPT Act, a particular income payment where a tax is required to be withheld can now be allowed as a deduction from the gross income, even if no tax was withheld. This is provided that the expense is necessary, ordinary, and duly substantiated, and related to the registered business of the taxpayer.
The Effectivity of the EOPT Act
The EOPT Act took effect on January 22, 2024. This raised questions about whether the repeal of the said provision may be applied to all assessed cases and ongoing audits covering taxable periods prior to the effectivity of the EOPT Act.
Policies and Clarifications
In response to these questions, the BIR has advised the following policies and clarifications:
- For all ongoing audits covering the taxable period prior to January 1, 2024, expenses subject to withholding tax shall be allowed as deductions from gross income by the Revenue Officers (RO) only if the corresponding tax required to be withheld has been paid.
- If a taxpayer failed to withhold the tax required to be withheld on expenses subject to withholding tax and did not pay the same prior to submission of the audit report to the reviewing office, the RO has to recommend for the issuance of an assessment notice both on income and withholding tax.
- For audit cases which are already submitted to the Reviewing Office:
- Paid Case: The same application stated under item 1 hereof.
- Assessed Case: Apply the requirement of deductibility under the then Section 34 (K) of the Tax Code.
For the taxable year covering January 1, 2024 onwards, expenses/income payments subject to withholding tax shall be allowed as deductions from gross income for purposes of computing taxable income even if no tax was withheld. However, the taxpayer shall still be liable for the payment of the corresponding withholding tax due on said income payments.
The BIR encourages everyone to give this circular as wide a publicity as possible.