BIR Ruling [DA-412-99]

July 19, 1999 BIR RULING [DA-412-99] The Medical City San Miguel Avenue corner Lourdes Rd., Ortigas Center Mandaluyong City Attention: Ms. Aida L. Placido Chief Accountant Gentlemen : This refers to your letter dated June 25, 1999 requesting clarification of RA 7432 vis--vis Revenue Regulations No. 2-94 relative to the grant of 20% discount to senior citizens. It is your opinion that pursuant to RA 7432 and the several cases decided by the Court of Tax Appeals (CTA), said discounts may be claimed as tax credit. Accordingly, you would like to claim as tax credit the sum of P3,045,487.30 representing the whole amount of discount granted to senior citizens for 1998 and as prior year's excess credit the additional amount of P2,102,918.00 representing the remaining 65% of the total senior citizen's discount granted in 1995, 1996 and 1997, considering that senior citizen's discount for those taxable years was treated as normal discount only. In reply, please be informed that this Office has consistently held the view that the term "discount" as contemplated under Section 4(a) of R.A. No. 7432 shall be considered as deduction from gross income for income tax purposes and from the gross sales for value-added tax or other percentage tax purposes [Section 2(i), Rev. Regs. No. 2-94]. Such that, in clarifying said position, we issued BIR Ruling No. 65-97 dated May 15, 1997, which provides in part: "xxx xxx xxx ". . . , it can be said that "sales discount" is merely a deduction from gross income/sales/receipts to arrive at the taxable income, while a tax credit is in the nature of a tax refund, which is treated as a return for tax payments erroneously and excessively assessed against a taxpayer. In other words, in order that one can claim a tax credit, the taxes due must be paid first by a taxpayer (which payment may be erroneously or excessively paid), after which he could request f or a tax refund or tax credit. . . . HcaATE "xxx xxx xxx "It is likewise important to note that the legal provision in question (Section 4 of R.A. No. 7432) employs the word "may" in the clause, "Provided, "that private establishments MAY claim the cost as tax credit" implying that the availability of the remedy of tax credit is not absolute and mandatory; it does not confer an absolute right on the taxpayer to avail of the tax credit scheme if it so chooses; neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer. "Accordingly, it is the opinion of this Office that the treatment of "sales discount" as deduction from the gross income for income tax purpose and from the gross sales for value-added tax or other percentage tax purpose, as provided for under Section 2, paragraph (i) of Revenue Regulations No. 2-94, is the better interpretation rather than as "tax credit." . . ." CSTcEI As for the CTA decisions ordering the BIR to issue tax credit in the cases involving the grant of discount to senior citizens, the Bureau has filed with the Court of Appeals Petitions for review with a motion to stay the execution of said decisions. Pending the resolution by the Court of Appeals of the issues raised in our Petitions, this Office cannot give due course to any claim for tax credit or refund. Moreover, not being a party to the case, you are not the proper party to ask for the execution of the decisions of the CTA. You are, therefore, required to continue the practice of treating the 20% senior citizen's discount as deduction from gross income and/or gross sales pursuant to Rev. Regs. 2-94. In view of the foregoing, your request for tax credit is hereby denied for lack of merit. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group