Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 35-97)
The circular provides a clarification on the term 'tax credit' under Section 4(a) of Republic Act No. 7432 (Senior Citizens Act) in relation to Section 2(I) of Revenue Regulations No. 2-94.
It grants a twenty-percent (20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, restaurants, recreation centers, and purchase of medicine anywhere in the country for senior citizens.
Private establishments may claim the cost of the discount as a tax credit.
The BIR interprets 'discount' as a deduction from gross income for income tax purposes and from gross sales for VAT or other percentage tax purposes, not as a 'tax credit.'
(1) Recorded as a reduction from gross sales; (2) Recorded as an expense of the period; (3) Sales revenue initially recorded at net amount after discount, with amounts from customers not taking discounts recorded as additional revenue.
A sales discount is a deduction from gross income/sales/receipts to arrive at taxable income, while a tax credit is a return or refund for taxes erroneously or excessively paid by the taxpayer.
The taxpayer must have first paid the tax due (even if erroneously or excessively) and must file a claim for credit or refund in writing within two years after the payment of the tax or penalty.
It implies that claiming the cost as tax credit is not an absolute or mandatory right and does not impose a duty on the government to allow such claims automatically; the remedy is discretionary and subject to government control.
The BIR suggests amending the law to clearly state that the 'discount' referred to should be treated as a plain 'deduction' and not as a 'tax credit' to avoid confusion.
The Court opined that automatic crediting of tax payments against future tax liabilities could cause confusion and abuse, depriving the government of control over tax credits and potentially causing revenue loss.