The Bureau of Internal Revenue (BIR) said it would audit pre-need companies as part of the agency’s efforts to raise more revenues and meet its targets.
Internal Revenue Commissioner Lilian Hefti said she has directed the BIR’s Large Taxpayers Service (LTS) and Revenue District Offices (RDOs) to pre-audit pre-need companies which use receipts or contract price as their taxable base for payment of their value-added taxes (VAT) instead of the gross receipts without any deduction.
Hefti said she has received reports that for purposes of computing their VAT obligations, most pre-need companies use receipts and contract price net of contribution to the trust fund as their taxable base.
The tax chief said that such contribution is similar to the recorded “reserve” in the case of insurance companies which is not deductible.
“Reserve is not deductible for purposes of determining the taxable gross premium for non-life insurance companies as well as life insurance companies,” Hefti said.
Hefti said that pre-need companies which will be found to be using an incorrect tax base shall immediately be issued an Assessment Notice (AN).
Furthermore, the BIR issued guidelines on the proper treatment of block sale of shares of stock disposed of in the Philippine Stock Exchange (PSE).
The BIR said that the sale of shares of stock where the sale is prearranged or the buyer is predetermined is subject to the capital gains tax, not to the stock transaction tax.
Accordingly, any transaction, which in effect excluded the public by any means from taking part in the trading, shall be subject to the capital gains tax.
Hefti’s issuance covers cases of block sale which is defined in the implementing rules and regulations of the Securities Regulation Code as a matched trade that does not go through the automated order matching system of an exchange trading system.
Such sale has been pre-arranged among the broker dealer’s clients and is then entered as a done deal directly into the trading system.
“The fundamental principle underlying this preferential treatment was and still is the national objective of promoting the development of the domestic capital market by means of enticing the general public to take part in the trading in the local stock exchange,” Hefti said.