Businesses get longer tax relief from COVID-19-induced losses

MANILA, Philippines – With the implementation of the Bayanihan to Recover as One Act in full swing, taxpayers will enjoy various tax exemptions under the law, including relief among businesses losing money amid the pandemic.

One of the three tax-related guidelines of Republic Act (RA) No. 11494 or the Bayanihan 2 Law published by the Bureau of Internal Revenue (BIR) on Friday, Revenue Regulations (RR) No. 25-2020 extended to five straight years, instead of only three years under the Tax Code, the period of entitlement to deduct net operating losses incurred by business enterprises this year and next year. This perk can be availed “immediately following the year of such loss,” read RR 25-2020 signed by Finance Secretary Carlos G. Dominguez III and Internal Revenue Commissioner Caesar R. Dulay.

“The net operating loss for said taxable years may be carried over as a deduction even after the expiration of RA 11494 provided the same are claimed within the next five consecutive taxable years immediately following the year of such loss,” RR 25-2020 said.

To avail of the net operating loss carry-over (Nolco) perk, the BIR said the deductions for taxable years 2020 and 2021 must be presented in separate notes to the financial statements and must not be combined with Nolco for other taxable years.

“Failure to comply with this requirement will disqualify the taxpayer from claiming the Nolco,” the BIR said.

Dominguez had said the government would have to absorb P139.6 billion in foregone tax revenues from 2021 to 2025 due to this longer relief period being extended to firms badly hit by the COVID-19 pandemic.

Also, Dominguez and Dulay issued RR 24-2020 to implement the exemption of extended loans and restructured credits from payment of documentary stamp tax (DST) until Dec. 31, similar to the exemption extended under the Bayanihan 1 Law.

“No additional DST, including those imposed under Section 179, 195 and 198 of the National Internal Revenue Code (NIRC), as amended, shall apply to term extensions and credit restructuring, micro-lending including those obtained from pawnshops and extensions thereof granted by covered institutions for loans falling due, or any part thereof, on or before Dec. 31, 2020,” RR 24-2020 read.

Section 179 of the Tax Code covered debt instruments; Section 195 covered mortgages, pledges, and deeds of trust; and Section 198 covered assignments and renewals of certain instruments.

However, RR 24-2020 said “interbank loans and bank borrowings shall be subject to the DST imposed under Section 179,195 and 198” of the Tax Code.

All public and private banks, quasi-banks, financing companies, lending firms, as well as the Pag-IBIG Fund, the state-run pension funds Government Service Insurance System (GSIS) and Social Security System (SSS), and other financial institutions must abide by this DST exemption.

The state-run think tank National Tax Research Center (NTRC) earlier estimated the exemption from DST payments of credit extensions and restructuring as well as micro-lending during the Bayanihan 1 implementation to result in foregone revenues worth P470 million this year.

As for RR 23-2020 also signed by Dominguez and Dulay, “tax on shares of stocks sold, bartered, exchanged or other disposition through initial public offering (IPO) provided under Section 127 (B) of the [Tax Code] is repealed.”

“Thus, every sale, barter, exchange, or other disposition through IPO of shares of stock in closely held corporations shall no longer be subject to the tax imposed under Section 127(B) upon the effectivity of RA 11494,” RR 23-2020 said.[ac]