The government will test the behavior of taxpayers, particularly large corporations, on a new tax regulation that allows firms to avail themselves of optional standard deduction (OSD) in their payments instead of the usual procedure.

According to Marissa Cabreros of the Bureau of Internal Revenue’s (BIR) Large Taxpayers Service, the new measure, called OSD ,will have an effect on the agency’s collection since it gives a way for the taxpayers to choose their choice of tax computation.
 
“I think it’s regular for a human being to choose the lower tax payments. But we will still determine how the taxpayers will behave with this new scheme,” Cabreros said in a forum organized by the Financial Executives Institute of the Philippines (Finex).
 
Some accountants from Punongbayan & Araullo believe the government may end up collecting more with the OSD scheme since in the itemized system, the tax deduction may go as much as 80 percent.
 
This means only 20 percent of the income ends up being taxed by the government, compared with 60 percent in the OSD scheme.
 
The OSD scheme is placed in Republic Act (RA) 9504, or the New Income-Tax Exemption Law, which gives taxpayers—including individual payers—another way of computing their income-tax deductions instead of the usual itemized rate.
 
For an individual, it gives a standard deduction rate of 40 percent of his gross receipts or sales; while for a corporation it gives a standard deduction of 40 percent of the firm’s gross income.
 
The BIR defines gross income as gross sales less sales returns, discounts, allowances and cost of goods sold.
 
By April 15, the deadline for the filing of the income-tax returns for  year 2008, Cabreros said the agency is not expecting much confusion among tax- payers since “the OSD is simpler” and corporate groups have already set up various seminars to educate accountants since last year.
 
She said much of the schemes used here were not new and were only based on the minimum corporate income- tax scheme of the BIR, as mentioned in the Tax Code.
 
RA 9504 was enacted on July 6 last year, and its implementing rules and regulations came out on December 20, 2008.
 
The BIR has allowed companies to use the OSD scheme starting only from July 1 to December 31, 2008. Tax periods of January to June will use the old system of itemized deduction.
 
This means that if a corporate accounted opted for the new scheme, it will use two tax calculations—one for old system and another one for the OSD scheme.
 
Starting next year, however, BIR will only allow companies to choose either the itemized system or the OSD scheme.
 
“The use of the OSD scheme is irrevocable for the tax year. So make sure that when you use the new system, all your amendments will be on OSD and will not be reverted to the old itemized deduction,” Cabreros told the participants of the forum.