CHAPTER 22 ITEMIZED DEDUCTIONS

RESEARCH AND DEVELOPMENT

A. Research and Development Expenditures

 May be treated as:
1. Ordinary & necessary expense not chargeable to a capital acct.
o Paid/incurred in connection with trade/business
o Allowed as deductions during the taxable year when paid/incurred
2. Deferred exp. chargeable to a capital acct. but not to property which is subject to
depreciation/depletion

Amortization of certain research and dev. Expenditures

 The ff. expenditures may be treated as deferred exp.:

a. Paid/incurred in connection with trade/business/profession
b. Not treated as exp. under para. (1), Sec. 34 (1) of the Tax Code
c. Chargeable to a capital acct. but not to property which is subject to
depreciation/depletion
 In computing TI, such deferred exp. – deductible but ratably distributed over a period of
not less than 60 mos.
 The election may be made for any year beg. after the effectivity of the Code but only if
not made later than the time prescribed for filing return for such year.
 Method and period selected shall be adhered to in computing TI for the year election is
made and subsequent years unless the Commissioner approves a change to a different
method.
 Election shall not apply to any expenditure prior to the year election is made.

Limitations on deduction

 Shall not apply to:

a. Expenditure for acquisition and improvement of land & property to be used in
research and dev. Subject to depreciation/depletion
b. Expenditure incurred for ascertaining existence, location, extent, or quality of any
deposit ore/other mineral
B. Premium payments on health and/or hospitalization insurance of an individual taxpayer (Prior to
2018
 Amount of premiums not to exceed P2,400 per family or P200 a month paid for
health/hospitalization insurance taken by the taxpayer for himself and his family –
deductible from GI provided that the family had GI of not more than P250,000 for the
year.
 In case of married taxpayers, only the spouse claiming the additional exemption for
dependents shall be entitled to deduction.

Requisites for deduction

1. Taxpayer must be an individual, either married or head of family

2. Premium payments is for health/hospitalization insurance of taxpayer and his family
 3. Taxpayer’s family has a GI of not more than P250,000 for the taxable year
4. In case of married taxpayers, only the spouse claiming the additional exemption for
dependents shall be entitled to deduction. If there are no qualified dependents
entitling either spouse to additional exemption, only the husband generally can
claim this deduction.
 Individuals earning compensation income could not avail itemized deductions but may deduct
such premium payments on health/hospitalization insurance not to exceed P2,400 for the year.

NOTE: By the enactment of RA No. 10963, above-described premium payments are no longer
allowable deductions effective Jan. 1, 2018.

APPENDIX A SPECIAL PROVISIONS REGARDING INCOME AND DEDUCTIONS OF INSURANCE COMPANIES

Gross Income of Insurance Companies

 GI includes net premiums (gross premiums – returned premiums on policies not taken),
investment income, profits from sale of assets, and all gains/profits/income reported to
Insurance Commissioner
 Net decrease in reserve funds if released to the general uses of the company and increase its
assets and not applied to the purposes for which they were established – included in the GI

Cost of services of direct cost of insurance companies

 Incurred costs exclusively related to the creation of revenue from their business activity
including generation of investment income not subject to final taxes and shall be limited to the
ff.:
1. Salaries/wages/employee benefits of personnel directly engaged in the ff. activities:
a. Underwriting
b. Claims and benefits
c. Actuary
d. Policy owner services
2. Commissions on direct writings/reinsurance
3. Cost of facilities directly utilized in providing service
4. Inspection and medical fees
5. Claims/losses/maturities/benefits/net of reinsurance recoveries
6. Additions required by law to reserve funds
7. Reinsurance ceded

Special Deductions Allowed to Insurance Companies

 Insurance companies, whether domestic/foreign, doing business in the PH, are entitled to the
same deductions from GI as other corporations
 Are allowed to deduct from GI the ff.
1. The net additions required by law to be made within the year to reserve funds
2. Sums other than dividends paid on policy and annuity contracts (including matured
endowments, payments on installment policies, and surrender values actually paid)
  Investment expenses relating to investment income that is not subject to final tax, although not
forming part of direct cost, shall be allowed as deduction.

Mutual insurance companies

 Mutual fire/employers’ liability and mutual workmen’s compensation/casualty insurance

companies requiring members to make premium deposits to provide for losses and expenses,
shall not return as income premium deposits returned to policyholders, but shall return as
taxable income all income received by them from all other sources plus portion of premium
deposits retained for purposes other than payment of losses/exp./reinsurance reserves

Mutual marine insurance companies

 Shall include gross premiums collected by them less amounts paid for reinsurance in their
returns of GI
 Entitled to deduct the ff.:
a. Amounts repaid to policyholders on account of premiums previously paid by them
b. Interest paid upon those amounts bet. the ascertainment and payment thereof

Assessment insurance companies

 May deduct the actual deposit of sums with the officers of the govt. of the PH as additions to
guarantee or reserve funds

Net addition to reserve funds

 All policy premiums on which net addition to reserve is computed must be included in GI.
 Net addition required by law – deductible from GI
 “Released reserve” – amount released which results to reserve at the end of the year to be less
than the beg. of the year must be included in GI
 In case of assessment insurance companies - actual deposit of sums with the officers of the govt.
of the PH as additions to guarantee or reserve funds shall be treated as payments required by
law to reserve funds
 In case of life insurance companies – net addition to “reinsurance reserve” and the “reserve for
supplementary contracts” is deductible
 In case of fire, marine, accident, liability and other insurance companies – net addition to
“unearned premium reserves” is deductible

SPECIAL PROVISIONS REGARDING INCOME AND DEDUCTIONS OF DEPOSITORY BANKS

 Income earnings of banks can be derived from the operations of its

1. Regular banking unit (RBU)
o Taxable income from RBU operations is subject to RCIT of 30%
2. Expanded/Foreign currency deposit unit (FCDU)/(EFCDU)
o Income with respect to foreign currency transactions with non-residents, OBUs, and
local commercial banks including branches of foreign banks – exempt from IT
o Income from foreign currency loans to residents – 10% FT

Allocation of costs and expenses bet. the RBU and FCDU/EFCDU

  Only costs and exp. attributable to RBU operations can be claimed as deductions to arrive at TI.
 Exp. related to FCDU/EFCDU is not deductible from the GI of an RBU.
 Costs and exp. shall be allocated bet. the RBU and the FCDU/EFCDU using the ff. methods:
1. By specific identification – exp. which can be specifically attributed to a particular unit shall
be reported and declared as costs and exp. of that unit
2. By allocation
Grossincome of RBU ∨EFCU of the bank
X Unattributed expenses=Expenses allocated ¿ RBU
Total gross income of the bank
o Total GI included all earnings subject to RIT and FT, as well those exempt from IT.
 Applicable to other financial institutions with regard to allocation of costs and exp. among
income earnings derived from active operations subject to RCIT, passive activities subject to final
tax, and other activities producing income exempt from IT.
 Financial institutions – banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries (not including insurance companies)

SPECIAL PROVISIONS ON DEPOSITS/ADVANCES MADE BY CLIENTS OF GPP

 It is a common business practice for GPPs to either:

1. To require their client to deposit a sum of money with the GPP to be used to cover
necessary expenses. – to be liquidated by the GPP
2. To pay in advance necessary exp. on behalf of their clients – shall be paid by the clients
 Expenses are therefore incurred in behalf of a GPP’s client. However, the official
receipts/invoices covering such exp. are issued by third-party establishments and are issued in
the name of GPP. As consequence, the same exp. may be claimed as deduction by both the GPP
and its client which is not allowed by the Tax code.

Service Income of GPPs

 When a GPP receives a cash deposit/advance from a client, it shall issue the corresponding
official receipt therefor. – booked as income and form part of gross receipts subject to VAT

Deduction of Expenses

 All exp. Supported by official receipts/invoices issued by third-party establishments in the name
of the GPP may be claimed by the GPP as deductions from GI – not deductible by GPP’s clients
 Payments made by client to a GPP – deductible from the client’s GI as “Professional Fees”
provided such are substantiated by official receipts issued by GPP

Summary of Transactions

A. When client makes a deposit for necessary expenses

1. Receipt of deposit – GPP shall issue an official receipt to client.
a. If on cash basis, it shall record as “Service Income”
Assume it is inclusive of VAT, entries would be:
Cash
Service income
Output VAT
b. If on accrual basis, it shall record as “Unearned Income”
 Assume it is inclusive of VAT, entries would be:
Cash
Deposit from client/Unearned income
Output VAT

On the other hand, client’s accounting entries shall be as follows:

a. If on cash basis – outright expense

Professional fees
Input VAT
Cash
b. If on accrual basis – deferred/prepaid expense
Deposit to GPP/Deferred expense
Input VAT
Cash
2. Payment is made to third-party establishments – when GPP spends all of the deposit
(exclusive of VAT) for the necessary exp. of its services to its client and OR are issued in the
name of GPP by third-party establishments, accounting entries are as follows:

GPP (cash basis)

Expenses
Input VAT
Cash

GPP (accrual basis)

Expenses
Input VAT
Cash

Deposit from client/Unearned income

Service income

When the client’s deposit is less than the expenses

Assume GPP spent additional exp. net of VAT after spending all previously deposited by the
client.
 GPP (cash basis)
Expenses
Input VAT
Cash
 GPP (accrual basis)
Expenses
Input VAT
Cash

Accounts receivable – client

 Service income
The client shall pay the GPP for the above bal. and latter shall issue OR. GPP shall record
such payment by the client as follows:
 GPP (cash basis)
Cash
Service income
Output VAT
 GPP (accrual basis)
Cash
Accounts receivable - client
Output VAT

The client shall then record the above payment as follows:

 Client (cash basis)
Professional fees
Input VAT
Cash
 Client (accrual basis)
Professional fees
Input VAT
Cash

Professional fees
Deposit to GPP/Deferred expense
3. Liquidation of deposit and expenses
 If there’s an excess left, it will be returned by the GPP to its client and shall record
such liquidation/return as follows:

GPP (cash basis)

Service income
Input VAT
Cash

GPP (accrual basis)

Deposit from clients/Unearned income
Input VAT
Cash
 The client upon receipt of excess deposit shall record:

Client (cash basis)

Cash
Professional fees
Output VAT
 Client (accrual basis)
Cash
Deposit to GPP/Deferred exp.
Output VAT

Professional fees
Deposit to GPP/Deferred expense

B. When the firm advances for the necessary exp. on behalf of the client and bills the latter for the
same
1. Payments made to third-party establishments on behalf of the client
 GPP (cash basis)
Expenses
Input VAT
Cash
 GPP (accrual basis)
Expenses
Input VAT
Cash

Accounts receivable – client

Service income
2. Collections of the exp. made on behalf of the client – GPP shall make a summary of all exp.
made on behalf of the client and shall bill the client for the same. Upon receipt of the entire
amount billed, the GPP shall issue the client an OR.
 GPP (cash basis)
Cash
Service income
Output VAT
 GPP (accrual basis)
Cash
Accounts receivable - client
Output VAT

The client, whether on cash or accrual basis, shall record above payment as follows:

Professional fees
Input VAT
Cash

SPECIAL PROVISIONS ON DEPOSITS/ADVANCES MADE BY CLIENTS OF TAXPAYERS OTHER THAN GPPs

1. When cash deposits are received by such taxpayer from client an OR shall be issued which
covers entire amount paid. – shall be booked as income and form part of GR subject to VAT/OPT
2. Client may treat deposit/advance as a deductible exp. provided an OR is substantiated.
 Check pre-forma entries on p.789
SPECIAL PROVISIONS ON DEDUCTIONS OF REITs

 REIT – principal purpose is that of owning income-generating real estate assets

 Taxable on all income derived from sources within and without PH at 30%
 In no case shall a REIT be subject to MCIT
 An additional special deduction in the form of dividends paid shall be allowed.
 Allowable deductions can either be Itemized Deductions or OSD.
 The dividends deductible shall pertain to those distributed out of REIT’s distributable income at
any time after the close of but not later than the last day of the 5 th month from the close of
taxable year. Provided, however:
1. REIT must maintain a Minimum Public Ownership of 40% for its first 2 years and 67% on or
before 3rd year and thereafter.
2. If REIT fails to attain MPO of 67% in its first 2 years, it shall place an escrow with an
authorized agent bank in favour of BIR the income tax collectible had the dividend paid been
disallowed as deduction.
3. Escrowed IT shall be released upon showing proof of compliance with the MPO of 67%
within 3 years of its listing.
4. By end of 3rd year and thereafter, the REIT shall maintain MPO of 67%. Otherwise, dividends
shall not be deductible.

General requirements for availment of tax incentives

1. Be a public company and maintain its status – listed with a local stock exchange and has at
least 1,000 public shareholders each owning at least 50 shares. MPO must be increased to
67% within 3 years from listing.
2. Distribute at least 90% of its distributable income.
 Failure to comply shall be subject to 30 days curing period from the occurrence of
the event

Withdrawal of tax incentives

a. REIT shall be subject to applicable taxes, plus interests and surcharges upon occurrence of
any of the ff. events:
1. Failure to maintain its status as public co.
2. Failure to maintain the listed status of its shares & derivatives on local exc. and
registration with SEC.
3. Failure to distribute at least 90% of its distributable income
4. Failure to list with local exc. within the 2-year period from the date of initial availment
of DST incentive
5. Revocation/cancellation of the registration of securities of a REIT.
 Deficiency income tax is computed based on its GI less deductions. Dividends
distributed shall not be deductible
 Income tax escrowed for the 1st and 2nd years shall be released in favour of the govt.
which shall be applied against the deficiency income tax computation.
TAX INCENTIVES FOR ESTABLISHMENTS GRANTING SALES DISCOUNTS TO PWD

Sales discounts which may be claimed by qualified PWDs – 20% discount

a. On fees & charges relative to the utilization of all services in hotels and similar lodging
establishments, restaurants, and recreation centers
b. On admission fees charged by theaters, cinema houses, concert halls, circuses, carnivals,
and other similar places of culture, leisure, and amusement
c. On the purchase of medicines in all drugstores
d. On medical and dental services in all govt. facilities subject to guidelines issued by DOH in
coordination with PHIC.
e. On medical and dental services in all private hospitals and medical facilities subject to
guidelines issued by DOH in coordination with PHIC.
f. On actual fares for domestic air and sea travel (offered discount or 20% whichever is higher)
g. On actual fares for land transportation travel
h. On funeral and burial services for the death of the PWD upon presentation of death
certificate and PWD ID Card/original or certified true copy of the proof of registration from
the issuing LGU by the beneficiary

Availment of sales discounts as deduction from GI

 Establishments granting sales discounts to PWD shall be entitled to deduct the sales
discount from their GI for income tax purposes, subject to the ff. conditions:
1. The business establishment is required to keep separate and accurate records of
sales. – include the name of PWDs, PWD ID number, gross sales/receipts, sales
discounts granted, date of transactions, and invoice no. for every sale transaction
NOTE: if there’s no name and PWD ID no. – Deduction is not allowed
2. Only portion of gross sales exclusively used/consumed/enjoyed by PWD shall be
eligible for the deductible SD.
3. Seller must record its sales inclusive of discount granted. – discount shall not
deducted to arrive at net sales but shall be deducted from GI (sales – cost of sales)
a. Seller is a VAT taxpayer. – 20% SD is based on sales, net of 12% VAT.
Entries:
Debit – cash
Debit – PWD discount expense
Credit - sales

NOTE: Failure to include details in records would result in disallowance of 20% SD

and also the input tax attributable to VAT-exempt sale.

b. Seller is an OPT taxpayer – 20% SD is excluded from tax base in computing the
3% OPT.
Entries:
Debit – cash
Debit – PWD discount expense
Credit – sales
 Debit – OPT due
Credit – Tax Payable

NOTE: PWDs is exempt from paying VAT

4. SD is treated as necessary and ordinary expense deductible from GI of seller falling

under itemized deductions.
5. SD is not accounted as deductible exp. by taxpayers availing OSD.
6. SD is allowed as itemized deductions in the same year that the discounts are
granted.
7. Gross selling price and SD must be separately indicated in sales invoice/OR
8. Only actual amount of SD not exceeding 20% of GSP/GR is deductible.

Eligibility of PWDs to discount privileges

 Abovementioned privileges are available only to PWDs who are Filipino citizens upon
submission of any of ff.
1. ID card issued by city/municipality mayor or barangay captain of the place where he
resides
2. Passport of PWD
3. Transportation discount fare ID card issued by NCWDP

No double discount

 Abovementioned privileges may not be claimed if PWD claims a higher discount granted
by the establishment or in combination with other discount programs.
 In cases where the PWD is also a senior citizen entitled to 20% discount under a valid
Senior Citizen ID, the PWD can only claim one 20% discount.

TAX INCENTIVES FOR EMPLOYERS OF DISABLED PERSONS

a. Private entities that employ disabled persons is entitled to a deduction from GI equal to 25% of
total amount paid as salaries/wages to disabled persons subject to the ff. conditions:
1. Present proof certified by DOLE that disabled persons are under their employ
2. Disabled employ is accredited with DOLE and DOH as to his disability, skills, and
qualifications
b. Private entities that improve their physical facilities in order to provide reasonable
accommodation for disabled persons shall be entitled to deduction equal to 50% of direct costs
of improvements/modifications
 Check p. 801

TAX INCENTIVES FOR ESTABLISHMENTS GRANTING SALES DISCOUNTS TO SENIOR CITIZENS

 Senior citizen/Elderly – Filipino citizen who is a resident of the PH and at least 60 years old. It
may also apply to senior citizens with dual citizenship status provided they prove their Filipino
citizenship and residency for at least 6 mos.

Establishments eligible for special deduction

1. Establishments supplying the ff. goods & services to senior citizens shall give 20% discount and
are allowed to claim such discounts as special deduction from GI.
a. Medicines – refer both prescription and non-prescription medicines and articles approved
by the DOH-BFAD for diagnosis/cure/mitigation/treatment/prevention of diseases
NOTE: 20% discount and VAT exemption privilege shall also apply to medicines purchased
from non-traditional outlets like groceries
b. Professional fees of attending physicians in all private hospitals and the like
c. Professional fees of licensed professional health workers providing home health care
services
d. Medical and dental services & diagnostic and laboratory fees
e. Actual fare for land transportation travel in PUBs, PUJs, taxis, AUVs, shuttle services, LRT,
MRT, and PNR
NOTE: Toll fees are not the same as fares hence not subject to 20% SCD.
f. Actual transportation fare for domestic air transport services and sea-going shipping vessels
and the like.
g. Services in hotels, restaurants, and recreation centers

The ff. sales are not subject to SCD:

1. Bulk orders which are within the context of pre-contracted or pre-arranged group
meals/packages. However, to estimate a single food purchase for a SC which shall be subject
to 20% SCD, MEMC shall be applied. – most expensive & biggest single-serving meal
2. Set orders primarily prepared & intentionally marketed for children
3. “Pasalubong” food items which are not for personal consumption
4. “Novelty items” or non-consumables sold in restaurants
5. Alcoholic beverages if purchased “in bulk”
6. Cigars/cigarettes
7. Delivery fees for delivery orders which are billed separately

h. Admission to theaters/concert halls/circuses/carnivals

i. Funeral and burial services for death of a SC

2. Public utilities supplying water and electricity to senior citizens shall grant 5% discount on
monthly bill upon concurrence of the ff.:
a. Individual meter for said utility is registered in the name of the SC residing therein
b. Monthly consumption does not exceed 100 kilowatt hours of electricity and 30 cubic meters
of water
c. Discount is granted per household regardless of the number of SCs residing therein

These public utilities is allowed to claim discounts as special deduction from GI.

Public utilities supplying water, electricity, or telephone services to Senior Citizen Centers and
residential care or group homes that are run by the govt. /non-stock domestic corp. organized
primarily for promoting the well-being of abandoned SC – grant 50% discount. These public
utilities is allowed to claim discounts as special deduction from GI.
 If goods/services is offered at promotional discount, the discount granted to a SC shall be the
promotional discount or minimum discount whichever is higher. If the PD is less than the MD,
seller shall increase discount to meet MD prescribed for SC.

Special discount

 All establishments supplying any of the abovementioned goods/services may claim discounts
granted to SC as tax deduction based on cost of goods sold/services rendered
a. Cost of discount is deducted from GI for the same year discount is granted.
b. Amount of sales that must be reported for tax purposes by the establishment should include
the total amount of claimed tax deduction for discount to be deductible.
c. Income statement of seller must reflect discount not deducted to arrive at net sales but
shall be deducted from GI (sales – cost of sales)
d. Discounts granted by seller shall be treated as ordinary & necessary exp. under itemized
deductions and can only be claimed if seller does not opt for OSD. Claim of discount as an
additional item of deduction from GI is subject to the ff. conditions:
1. Only portion of gross sales exclusively used/consumed by the SC is deductible
2. Gross selling price and SD must be separately indicated in sales invoice/OR
3. Only the higher of the actual amount of discount granted or the statutory rate based on
GSP (20% discount, 5% on water/electricity, or 50% on water/electricity/telephone
consumption by SCC) is deductible.

NOTE: If customers did not order individualized food items, sale to the SC, gross of VAT,
must be determined using the ff. formula:

Total billing amount

Sale¿ CS gross of VAT =
No. of customers
ADDITIONAL DEDUCTION FROM GROSS INCOME OF PRIVATE ESTABLISHMENTS FOR COMPENSATION
PAID TO SENIOR CITIZENS

 Private establishments employing SC shall be entitled to an additional deduction from GI equal

to 15% of total amount paid as salaries/wages to SC subject to ff. conditions:
1. Employment shall have to continue for a period at least 6 mos.
2. Annual taxable income of SC does not exceed poverty level determined by NEDA through
NSCB.

TAX INCENTIVES FOR ESTABLISHMENTS AND INSTITUTIONS WITH ROOMING-IN AND BREASTFEEDING
PRACTICES

 Expenses incurred by a private health or non-health facility/establishment/institution in:

a. Provision of facilities by health institutions for rooming-in and breastfeeding, standards of
which is defined by DOH
b. Provision of lactation stations including necessary eqpt. and facilities, standards of which is
defined by DOH

Shall be deductible exp. up to twice the actual amount incurred, provided:

1. Deduction shall apply for the period when expenses incurred

 2. Such facilities/establishments/institutions shall secure a Working Mother-Baby-Friendly
Certificate from DOH to be filed with BIR

NOTES:

a. Rooming-in – placing of new-born in the same room as the mother right after delivery up to
discharge
b. Lactation stations – areas in the workplace/public places where nursing mothers can wash
up, breastfeed, or express their milk comfortably and store this afterward
c. Expressing milk – act of extracting human milk from breast by hand/pump into container

TAX INCENTIVES FOR LAWYERS RENDERING FREE LEGAL SERVICES

 A lawyer/professional partnership rendering actual free legal services shall be entitled to an

allowable deduction from GI equivalent to the lower of (a) amount that could have been
collected for the actual free legal services, or (b) 10% of GI derived from provision of legal
services, subject to the ff. conditions:
1. Actual free legal services is exclusive of the minimum 60-hour mandatory legal aid services
rendered to indigent litigants
2. Lawyer/professional partnership shall secure a certification from PAO, DOJ or any accredited
association of the Supreme Court, indicating that:
a. Said legal services to be provided are within the services defined by the Supreme
Court
b. Aforementioned agencies cannot provide the legal services to be provided by the
private counsel

TAX INCENTIVES FOR ESTABLISHMENT PARTICIPATING IN THE DUAL TRAINING SYSTEM UNDER RA NO.
7686 (DUAL TRAINING SYSTEM ACT OF 1994)

 Dual training system – instructional delivery system of technical and vocational education and
training that combines in-plant training and in-school training. Educational institution shall
provide an adequate level of specific, general, and occupation-related theoretical instruction,
while the business establishment shall provide practical training.

TAX INCENTIVES FOR ENTERPRISES ADOPTING PRODUCTIVITY INCENTIVE PROGRAMS UNDER RA NO.
6971 (AN ACT TO ENCOURAGE PRODUCTIVITY AND MAINTAIN INDUSTRIAL PEACE BY PROVIDING
INCENTIVES TO BOTH LABOR AND CAPITAL)

 Productivity Incentives Program – formal agreement established by the labor-management

committee in a business enterprise that will result in increased productivity whereby employees
are granted salary bonuses proportionate to increases in current productivity over the average
for preceding 3 consecutive years

Tax incentives

a. Granted a special deduction from GI equal to 50% of total productivity bonuses given to
employees
 b. Grants for manpower training & special studies given to rank-and-file employees pursuant to a
program for the development of skills identified as necessary by the appropriate govt. agencies
shall entitle the bus. Enterprise to a special deduction from GI equal to 50% of total grants
Provided that:
1. Productivity incentives program shall contain provisions for the factors in determining
bonuses and that productivity bonuses shall not be less than half of the percentage of
increase in productivity.
2. Bus. enterprise shall not be deemed to have forfeited any tax incentives accrued prior to
the date of a strike/lockout, and workers shall not be required to reimburse productivity
bonuses already granted to them under the productivity incentives program; and
bonuses which have accrued before strike/lockout shall be paid the workers within 6
mos. from their accrual.
3. Bonuses provided shall be given to employees not later than every 6 mos. from the start
of such program.

TAX INCENTIVES ACCRUING TO PRIVATE ENTITIES PARTICIPATING IN THE “ADOPT-A-SCHOOL PROGRAM”

UNDER RA NO. 8525 (ADOPT-A-SCHOOL ACT OF 1998)

 Adopt-a-School Program allows private entities to assist a public school preferably located in any
of the 20 poorest provinces

Tax incentives

 Entitled to a deduction from GI of the amount of contribution/donation that were actually,

directly, and exclusively incurred for the program plus additional 50% of such contribution
 If the program is a priority project – actual amount of contribution + 50% of such contribution
 If not – lower of 5% of NI (10% for individuals) before any contribution or the actual contribution
+ 50% of such contribution

NOTE: Donation made is exempt from donor’s tax

Valuation of the assistance/contribution

a. Cash assistance – based on actual amount contributed appearing in the OR issued by the donee
b. Assistance/contribution other than money
i. Personal property – based on the acquisition cost. If already used – depreciated value of
the property
ii. Consumable goods – acquisition cost by the donor or actual cost at the time of donation
whichever is lower
iii. Services – value agreed upon by the donor, service provider, and the public school as
fixed in the agreement or the actual expenses incurred whichever is lower
iv. Real property – FMV at the time of contribution or the book/depreciated value
whichever is lower (appraisal increase in value of asset recorded in the books of account
shall not be considered in computing the book value)

Conditions for the allowance of the deduction

1. Deduction shall be availed in the year expenses have been paid.

 2. Substantiate deduction with efficient evidence such as OR or delivery receipts and other
adequate records:
a. Amount of expenses claimed as deduction
b. Direct connection of expenses to the participation in the Adopt-a-School Program
c. Acknowledgement of receipt of the contributed property by the recipient public
school
3. If contribution is in the form of real property, the application for tax incentives together
with the approved Agreement endorsed by the National Secretariat shall be filed with
the RDO
NOTE: National Secretariat – office composed of representatives of DepED, CHED, and
TESDA

SPECIAL DEDUCTION FOR DONATIONS TO THE PNU UNDER RA NO. 9647 (PHILIPPINE NORMAL
UNIVERSITY MODERNIZATION ACT OF 2009)

 RA No. 9647 (Philippine Normal University Modernization Act of 2009) designates PNU as the
National Center for Teacher Education
 Gifts and donations of real and personal properties – exempt from donor’s tax and are
deductible from GI of the donor (150% of the value of such donation)

SPECIAL DEDUCTION FOR DONATIONS TO THE UP UNDER RA NO. 9500 (UNIVERSITY OF THE PHILIPPINES
CHARTER OF 2008)

 Gifts and donations of real and personal properties – exempt from donor’s tax and are
deductible from GI of the donor (150% of the value of such donation)

SPECIAL DEDUCTION FOR DONATIONS TO THE MUST UNDER RA NO. 9519

 Gifts and donations of real and personal properties – exempt from donor’s tax and are
deductible from GI of the donor (150% of the value of such donation) provided that such are not
disposed of, transferred, or sold.

TAX INCENTIVES GRANTED TO REGISTERED TOURISM ENTERPRISES (RTEs) IN TOURISM ENTERPRISE

ZONES (TEZs) UNDER THE RA NO. 9593 (TOURISM ACT OF 2009)

 Tourism enterprises registered with the TIEZA and are within the TEZs shall be entitled to a tax
deduction of up to 50% of the cost of:
a. Environmental protection activities in the surrounding areas of enterprise/TEZ as certified by
the DENR
o Environmental protection activities conducted for purposes of securing other
requirements under applicable laws and regulations shall not be covered by this
incentive
b. Cultural heritage preservation activities in the surrounding areas of enterprise/TEZ
c. Sustainable livelihood programs for local communities in the surrounding areas of
enterprise/TEZ
d. Other similar activities as may be determined by the TIEZA Board
TAX INCENTIVES GRANTED TO QUALIFIED JEWELRY ENTERPRISES (QJEs) UNDER RA NO. 8502 (JEWELRY
INDUSTRY DEVELOPMENT ACT OF 1998)

 QJE – natural/judicial entity existing under PH laws which is issued a BOI accreditation
 A QJE providing training its employees may avail of additional deduction equal to 50% of training
expenses incurred. This shall be added to the allowable ordinary and necessary expenses on
training actually incurred by enterprise during the taxable year.

Conditions for the availment of tax incentive

a. Must submit to BIR a certified true copy of its Certificate of Accreditation issued by BOI
b. Training schemes must be approved by TESDA
 For every training conducted, a corresponding TESDA certification shall be issued.

Conditions for the availment of tax incentive

 Tax deduction may be availed upon filing of quarterly/annual ITR accompanied with the ff.
supporting documents to the BIR:
a. Certified true copy of BOI Accreditation
b. Certification from TESDA
c. Official receipts of training expenses
d. Summary report containing details of actual cost of every training and aggregate training
expense incurred within the taxable year

TAX INCENTIVES FOR HOSPITALS OR MEDICAL CLINICS UNDER RA NO. 10932 (AN ACT STRENGTHENING
THE ANTI-HOSPITAL DEPOSIT LAW)

 In emergency/serious cases, it shall be unlawful for any

proprietor/president/director/manager/any other officer/medical practitioner/employee of a
hospital
a. To request/solicit/demand any deposit or any other form of advance payment as a pre-
requisite for (1) administering basic emergency care (2) confinement (3) medical treatment
b. To refuse to administer medical treatment & support
 PhilHealth shall reimburse the cost of basic emergency care & transportation services incurred
by hospital/medical clinic for emergency services given to poor & indigent patients
 PCSO shall provide medical assistance for the basic emergency needs of the poor & marginalized
groups.
 Expenses incurred in providing emergency care to poor and indigent patients which are not
reimbursed by PhilHealth and PCSO, shall be tax deductible.

OTHER SPECIAL ITEMIZED DEDUCTIONS

A. Deduction of Private Filipino Seed Procedures under RA No. 7308 (the Seed Industry
Development Act) – 200% deduction for expenses on seed research, development, and
extension for the first 5 years of operations
B. Deduction of Business Enterprises that Generate and Sustain Green Jobs – 50% of the total
expenses for skills training & research development expenses
 In order to avail tax incentives, a qualified business enterprise shall:
1. Register/update registration by submitting with RDO the certification
issued by the Climate Change Commission that the enterprise is qualified
to avail of the incentive
2. Upon filing its ITR/AIR, furnish the RDO with:
a. Sworn list of total expenses paid/incurred for skills training & research
development during the year
b. Sworn list of activities/projects undertaken
c. Sworn declaration that expenses paid or incurred have a direct
connection to the activities/projects that generate & sustain green
jobs