This Circular is issued to provide clarification and guidance on the amendments introduced by Republic Act No. 11976 otherwise known as the “Ease of Paying Taxes (EOPT) Act”, particularly on the repeal of Section 34 (K) of the National Internal Revenue Code (Tax Code) of 1997, as amended. The amendment is implemented through Section 6 of Revenue Regulations No. 4-2024.
With the repeal of the provision under the Ease of Paying Taxes (EOPT) Act, a particular income payment where a tax is required to be withheld can now be allowed as deduction from the gross income, even if no tax was withheld, provided the same is necessary, ordinary and duly substantiated expense related to the registered business of the taxpayer.
Since EOPT Act took effect on January 2022, 2024, a question arose if the repeal of the said provision may be applied to all assessed cases and on-going audits covering taxable periods prior to the effectivity of EOPT Act.
In this regard, all concerned are hereby advised of the following policies and clarifications:
- On all ongoing audit covering 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 have been paid, whether prior to audit or submission of the audit report to the Reviewing Office.
- In a scenario where taxpayer failed to withhold the tax required to be withheld on expenses subject to withholding tax and the taxpayer 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 assessment notice both on income and withholding tax. This is in line with the provisions of Revenue Regulations No. 6-2018.
- On audit cases which are already submitted to the Reviewing Office
a. Paid Case – Same application sated under item 1 hereof;
b. Assessed Case – apply the requirement of deductibility under the then Section 34(K) of the Tax Code, thus, assessment on both income tax and withholding tax shall be issued.
For 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, provided the other requirements for deductibility have been met. However, the taxpayer shall still be liable for the payment of the corresponding withholding tax due on said income payments.