Tax Law 1

ALLOWABLE DEDUCTIONS

Special Allowable Itemized Deductions

Q. What are the special allowable itemized deductions?
A. These are:
1. Ratable portion of Head Office (HO) Overhead (for RFC – Branches)
2. Deductions under Special Laws
With respect to the ratable portion of HO Overhead for RFCs, Section 42 (E) of the Tax
Code states:
"(E) Income From Sources Partly Within and Partly Without the Philippines. — xxx
Where items of gross income are separately allocated to sources within the
Philippines, there shall be deducted (for the purpose of computing the taxable income
therefrom) the expenses, losses and other deductions properly apportioned or
allocated thereto and a ratable part of other expenses, losses or other deductions which
cannot definitely be allocated to some items or classes of gross income. xxx

This requires adequate and satisfactory proof and explanations in order that the
claimed deductions of a foreign taxpayer may be allowed for income tax purposes (See
RAMO No. 04-86, RR No. 16-86)
On the other hand, deductions under special laws include the following, among others:
1. Senior Citizens’ Discount
2. Sales Discounts for Persons with Disability
3. Additional Deductions for Expenses Incurred for Salaries and Wages of and
Physical Facilities for PWDs
4. Expenses for Free Legal Services Rendered by Lawyers to the Poor
5. Additional Deductions for Expenses Incurred under Adopt-A-School Program
and Brigada Eskwela
6. Expenses incurred by a Private Health Institution with Rooming-In and Breast-
Feeding Practices
The privileges of senior citizens and the amount deduction from gross income are
explained in RR No. 07-10, July 20, 2010 (Implementing the Tax Privileges Provisions of
Republic Act No. 9994 (Expanded Senior Citizens Act of 2010)). The privileges of
Persons with disability (PWDSs) and the amount deduction from gross income are
explained in RR No. 01-09, as amended by RR No. 05-17 (Implementing the Tax
Privileges Provisions of Republic Act No. 10754 (An Act Expanding the Benefits and
Privileges of PWD)

Q. How should establishments present the Senior Citizen Discount in the Income
Statements?
A: The income statement of the seller must reflect the discount, not as a reduction of the
sales to arrive at net sales but as deduction from its gross income (sales less cost of
sales). Thus, the 20% Senior Citizen Discount shall be treated as a necessary and
ordinary expense duly deductible from the gross income, provided that the seller does
not opt for the Optional Standard Deduction during the taxable quarter/year. (Section 7
of RR No. 7-2010; RMC No. 38-2012, August 23, 2012)