RMC No. 115-2023: Classifies the costs associated with franchises, concessions, licenses, rights, operations agreements or similar arrangements (herein referred to as Licenses or Rights) granted by the government to operate a public service, including public utility as an Administrative Cost instead of “Direct Cost of Services”, for purposes of computing the gross income to determine the Optional Standard Deduction (OSD) under Section 34 (L) of the Tax Code of 1997, as amended by Section 3 of Republic Act (RA) No. 9504

Summary

RMC No. 115-2023 classifies costs of government-granted franchises, concessions, licenses and rights to operate a public service as Administrative Cost, not “Direct Cost of Services”, for computing gross income under the Optional Standard Deduction (OSD) in Section 34 (L) of the Tax Code.

Key points

1. Nature of Licenses or Rights. Public service Licenses or Rights are intangible assets, being legal or contractual rights granted by the government. Their costs are often capitalized and amortized over the useful life of the agreement.
2. Why administrative. Administrative costs cover general management and administration, such as legal fees, accounting costs and licensing fees. Obtaining the licenses or rights involves administrative processes, negotiations and legal formalities.
3. Effect on OSD computation. Costs of acquiring and maintaining these entitlements are not included in direct costs of services. They are considered separately when computing Gross Income for tax purposes, which affects the application of the OSD.

Who is affected

• Holders of government-granted franchises, concessions, licenses and rights to operate a public service, including public utilities
• Taxpayers using the Optional Standard Deduction

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.