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of the allowable deductions enumerated in Sec 34 of the the part of the seller and a purchase discount on the part
Tax Code. of the buyer, it may be expressed in such terms as "5/10,
• A tax credit differs from a tax deduction. On the one n/30."
hand, a tax credit reduces that tax due, including • A quantity discount is a "reduction in price allowed for
whenever applicable – the income tax that is determined purchases made in large quantities, justified by savings
after applying the corresponding tax rates to taxable in packaging, shipping, and handling." It is also called a
income. A tax deduction, on the other, reduces the volume or bulk discount
income that is subject to tax in order to arrive at taxable • A trade discount A "percentage reduction from the list
income. To think of the former as the latter is to avoid, price . . . allowed by manufacturers to wholesalers and
if not entirely confuse, the issue. A tax credit is used by wholesalers to retailers"
only after tax has been computed; a tax deduction, • A chain discount — a series of discounts from one list
before. price — is recorded at net.
• Functional discount (akin to a trade discount) is "a
TAX LIABILITY REQUIRED FOR TAX CREDIT supplier's price discount given to a purchaser based on
• Since a tax credit is used to reduce directly the tax that the [latter's] role in the [former's] distribution system.".
is due, there ought to be a tax liability before the tax It usually involves warehousing or advertising.
credit can be applied.
• By its nature, the tax credit may still be deducted from a DISTINGUISHING FEATURE OF IRR OF RA 7432
future, not a present, tax liability, without which it does IS THE ESTABLISHMENT’S OUTRIGHT
not have any use. In the meantime, it need not move. DEDUCTION OF THE DISCOUNT FROM THE
INVOICE PRICE OF THE MEDICINE SOLD TO
PRIOR TAX PAYMENTS NOT REQUIRED TAX SENIOR CITIZENS.
CREDITS • Although prompt payment is made for an arm's-length
(The SC just cites different examples of tax credits – Input transaction by the senior citizen, the real and compelling
tax credits, zero-rated or effectively zero-rated, tax treaties, reason for the private establishment giving the discount
etc.) is that the law itself makes it mandatory.
• RA 7432 grants the senior citizen is a mere discount
SEC 2.I AND 4 REVENUE OF REVENUE privilege, not a sales discount or any of the above
REGAULTIONS NO. 2-94 ERRONEOUS discounts in particular.
• RA 7432 and its IRR specifically allows private
establishments to claim as tax credit the amount of ERRONEOUSLY, UNDER THE IRR this benefit has
discount they grant. TO DENY SUCH CREDT, been erroneously likened and confined to a sales
DESPITE THE PLAIN MANDATE OF THE LAW discount INSTEAD OF A TAX CREDIT benefit
AND REGULATIONS CARRYING OUT THAT enjoyed by the private establishment granting the
MANDATE IS INDEFENSIBLE. discount.
• In ordinary business language, the tax credit represents • Sections 2.i and 4 of Revenue Regulations No. (RR) 2-
the amount of such discount. However, the manner by 94 define tax credit as the 20 percent discount deductible
which the discount shall be credited against taxes has from gross income for income tax purposes, or from
not been clarified by the revenue regulations. gross sales for VAT or other percentage tax purposes. In
• By ordinary acceptation, a discount is an "abatement or effect, the tax credit benefit under RA 7432 is related to
reduction made from the gross amount or value of a sales discount. This contrived definition is improper,
anything." 36 To be more precise, it is in business considering that the latter has to be deducted from gross
parlance "a deduction or lowering of an amount of sales in order to compute the gross income in the income
money;" 37 or "a reduction from the full amount or statement and cannot be deducted again, even for
value of something, especially a price." 38 In business purposes of computing the income tax. The definition
there are many kinds of discount, the most common of must be stricken down.
which is that affecting the income statement 39 or
Financial report upon which the income tax is based. LAWS CANNOT BE AMENDED BY
REGULATIONS.
BUSINESS DISCOUNTS DEDUCTED FROM GROSS
SALES
• A cash discount, for example, is one granted by AVAILMENT OF TAX CREDIY IS VOLUNTARY
business establishments to credit customers for their
prompt payment. Also referred to as a sales discount on
[SPBUS]
ALLOWABLE
DEDUCTIONS
02
RC
DISPOSITIVE PORTION
e.g. Petition DENIED. CA decision AFFIRMED.