Arlington Memorial Chapels, Inc.

March 19, 2008 BIR RULING [DA-189-08] RA 9257; DA-493-05 Arlington Memorial Chapels, Inc. 12 G. Araneta Avenue Quezon City Attention: Ms. Ma. Cynthia J. Colet VP for Finance Gentlemen : This refers to your letter dated January 7, 2008 requesting for an opinion on whether the twenty (20%) discount granted to senior citizens is to be treated as tax credit or deduction from gross income in your financial statements and income tax returns. It is represented that Arlington Memorial Chapels, Inc. (Arlington for brevity) is a domestic corporation incorporated under and by virtue of Philippine laws; that it is engaged in the mortuary business and authorized under its articles of incorporation to, among others, engage in and carry on the business of funeral undertaking, embalming, cremating and directing of deceased persons and all the elements and details thereof; and that pursuant to law, Arlington grants a 20% discount for funeral, burial and incidental services for the death of senior citizens. In reply, please be informed that prior to the effectivity of Republic Act (RA) No. 9257, the 20% discount given to senior citizens has been treated as a tax credit because the law then in force, i.e., RA 7432 (Act to Maximize the Contribution of Senior Citizens to Nation Building, Grants Benefits and Special Privileges) unconditionally grants a tax credit to all covered entities. (BIR Ruling No. DA-493-05 dated December 7, 2005) This is the view of the Supreme Court in a decision entitled Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, G.R. No. 159647 promulgated on April 15, 2005. ICDSca However, this Office holds that upon the enactment of RA No. 9257, otherwise known as the "Expanded Senior Citizens Act of 2003", which became effective on March 21, 2004; and with the promulgation of Revenue Regulations (RR) No. 4-06 which implements the said law, the only appropriate and applicable tax treatment now would be to recognize the 20% discount given to senior citizens as a deduction from gross income. Sec. 4 (a) of RA 9257 states that: "SEC. 4. Privileges for the Senior Citizens. The senior citizen shall be entitled to the following: "(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar lodging establishment, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior citizens; " (emphasis supplied). Pertinent provisions of RR 4-06 prescribed the guidelines for the availment of sales discounts as deduction from gross income, thus: "SEC. 8. Availment by Establishments of Sales Discounts as Deduction from Gross Income . Establishments enumerated in sub-paragraph (6) hereunder granting sales discounts to senior citizens on the sale of goods and/or services specified thereunder are entitled to deduct the said discount from gross income subject to the following conditions: (1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR ENJOYED BY THE SENIOR CITIZEN shall be eligible for the deductible sales discount. (2) The gross selling price and the sales discount MUST BE SEPARATELY INDICATED IN THE OFFICIAL RECEIPT OR SALES INVOICE issued by the establishment for the sale of goods or services to the senior citizen; (3) Only the actual amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income, net of value added tax, if applicable, for income tax purposes, and from gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax purposes. CSHcDT (4) The discount can only be allowed as deduction from gross income for the same taxable year that the discount is granted. (5) The business establishment giving sales discounts to qualified senior citizens is required to keep separate and accurate record of sales, which shall include the name of the senior citizen, TIN, OSCA ID, gross sales/receipts, sales discount granted, dates of transactions and invoice number for every sale transaction to senior citizen." Hence, subject to the foregoing guidelines, you will therefore treat the 20% discount granted to senior citizens as deductions from gross income and make such treatment in your annual financial statements and consequently in your income tax returns. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner (Legal Service)