By: Tax and Accounting Center Philippines
Under Section 34(F) of the Tax Code of the Philippines, there shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of property used in trade or business. To implement this provision, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 12-2012 dated 12 October 2012 (RR 12-2012) to define depreciation expenses relating to taxpayer’s purchase of Vehicles of all types (defined herein as passenger vehicles of all type, whether by land, water, or air) providing for limits on the deductibility thereof and all expenses related thereto, and the disallowance of input taxes for disallowed expenses.
Under Section 3 of RR 12-2012, the following guidelines shall be observed in determining whether depreciation expense can be claimed or not on account of Vehicles capitalized by the taxpayer, or in claiming other expenses and input taxes on account of said Vehicle:
For the information and guidance of taxpayers, the BIR issued Revenue Memorandum Circular No. 2-2013 dated 28 December 2012 (RMC No. 2-2013) to clarify certain provisions of Revenue Regulations (RR) No. 12-2012 on the Deductibility of Depreciation Expenses as it Relates to Purchase of Vehicles and Other Expenses Related Thereto, and the Input Taxes Allowed Therefor.
Q1. Does the RR apply to land vehicles purchased prior to its effectivity where the purchased amount exceeded the threshold of P2,400,00.00?
A1. No. The RR applies prospectively, thus, it applies to land vehicles purchased upon its effectivity.
Q2. When is the effectivity-date of the RR?
A2. The RR was published last October 17, 2012 and, based on its provisions, it shall take effect immediately. Hence, the RR took effect on October 17, 2012.
Q3. In case the Vehicles (defined in the RR as passenger vehicles of all type, whether by land, water, or air) which are not allowed depreciation expense, or the non-depreciable Vehicles, will be sold at a loss, will the loss to be incurred from such sale deductible from gross income?
A3. No. Any loss that will be incurred as a result of a sale of the non-depreciable Vehicles shall likewise be NOT allowed as a deduction from gross income.
Q4. What are the other expenses that are also disallowed for income tax and VAT purposes for the non-depreciable Vehicles?
A4. For income tax purposes, all expenses related to the non-depreciable Vehicles such as but not limited to repairs and maintenance, oil and lubricants, gasoline, spare parts, tires and accessories, premium paid for insurance covering said vehicles and registration fees shall not be allowed as a deduction in its entirety. For VAT purposes, all input taxes corresponding to the disallowed expenses mentioned above for income tax purposes are likewise not allowed.
In buying a new vehicle for use in trade or business, see to it that your comply with the above as to cost of P2.4M and as to the required details of the motor vehicle. Failure to follow the guideline would mean disallowance of depreciation expense from such motor vehicles, maintenance expenses, along with the related input taxes for VAT purposes.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at firstname.lastname@example.org.
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