Thursday, September 13, 2007 Tax, principles in accounting confuse payers
OFFICIALS of a local accounting and tax advisory firm are encouraging taxpayers to keep separate books of accounts for financial reporting and income tax reporting.
“For the benefit of the Bureau of Internal Revenue (BIR), taxpayers should maintain two sets of books to explain tax and financial accounts when necessary,” said Raymundo Gallardo, Punongbayan and Araullo (P&A) tax partner.
Gallardo said the difference in the provisions of the Tax Code’s implementing rules and regulations with those of generally accepted accounting principles have been a common subjects of disagreement between taxpayers and the BIR.
Since there is a confusion, taxpayers are often charged with unrecorded income, said Ma. Victoria Españo, another P&A tax partner and one of the resource speakers in a seminar last Tuesday.
Challenge
P&A conducted the seminar to assist BIR in dealing with differences between new accounting standards and income tax reporting.
Gallardo, in an interview with Sun.Star Cebu, acknowledged that there is a big challenge in reconciling taxpayers and BIR authorities, in terms of dealing with financial statements and other documents.
He said the seminar aimed to address the challenge so that “BIR knows where the taxpayers are coming from and that the latter will be responsible in explaining their books of accounts.”
“As much as possible it has to be detailed and transparent,” Españo said, referring to the financial statement.
Method used
According to a P&A publication titled, “New Accounting Standards and Income Tax Reporting: A Study of Differences,” the general principle in the Tax Code stipulates that revenues and expenses of a business for income tax purposes are, in general, determined based on the accounting method employed by a firm.
However, the BIR — in anticipation of the new accounting standards — issued a circular stating that the income tax return (ITR) and all other tax returns should always conform to internal revenue laws.
The circular also states that whenever there are differences between the provisions of the Tax Code and accounting principles, the same must be fully disclosed in the financial statement and/or the ITR.
Recently, BIR issued a regulation requiring taxpayers to maintain books and records that clearly shows the reconciling items between the amounts shown in the latter’s financial statement and the figures reported in its ITR.
But due to the lack of knowledge on the BIR mandate, Gallardo said only a few taxpayers are following this condition. (MMM)
