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Philippines: Deductions for computing 5% gross income tax (COVID-19)

Philippines: Deductions for computing gross income tax

The Philippine Economic Zone Authority (PEZA) (a government agency attached to the Department of Trade and Industry)—with the support of the Bureau of Internal Revenue (BIR)—identified several additional deductions for use in computing the 5% gross income tax in response to the coronavirus (COVID-19) pandemic.


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The PEZA guidelines provide that the following may be considered as direct costs for purposes of computing for the 5% gross income tax:

  • Costs for temporary accommodations for operations and for maintenance personnel of a PEZA-registered enterprise for the period of quarantine when the work can be directly attributable to the PEZA-registered service
  • Costs for providing shuttle services for such operations and maintenance personnel
  • Certain port charges arising from delays in the release of shipments immediately after the implementation of the quarantine
  • Costs for disinfecting and costs of personal protective equipment and sanitation requirements if incurred for operations and maintenance personnel and their work areas

The BIR expressed its position that expenses relating to COVID-19 testing are not directly related to the rendition of PEZA-registered services because the registered activities could still be conducted without such costs. Therefore, unless it can be proven that such COVID-19 tests are directly related to the registered service, the BIR position is that these costs must be classified as operating expenses and not direct costs.

Read a February 2021 report prepared by the KPMG member firm in the Philippines 

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