Keeping in mind the general welfare of the people in response to the COVID-19 pandemic, the government has set forth quarantine measures in major areas of the country. Not only the movement of the people became limited, it also halted the operations of many businesses thus resulting to a net loss especially to those who are not engaged in providing essential goods or services.
To provide the taxpayers time to recover from the losses incidentally being carried by the pandemic, the Bureau of Internal Revenue (BIR) has extended the period to claim Net Operating Loss Carry-Over (NOLCO) as tax deduction to five (5) years from the previous three (3) years. This is for the losses incurred for taxable years 2020 and 2021.The NOLCO is the excess of deductible expenses over gross income of the business. This extension is in conformance with Section 4 (bbbb) of Republic Act No. 11494 otherwise known as “Bayanihan to Recover As One Act”, which states that:
“Notwithstanding the provision of existing laws to the contrary, the net operating loss of the business or enterprise for taxable years 2020 and 2021 shall be carried over as a deduction from gross income for the next five (5) consecutive taxable years immediately following the year of such loss; Provided, That this subsection shall remain in effect even after the expiration of this Act;”
As to presentation requirement for government reporting, the NOLCO should be separately shown in the income tax return of the taxpayer. In the reconciliation section of the same tax return, it must also be shown independently. The NOLCO for taxable years of 2020 and 2021 should appear separate from the NOLCO of the other taxable years in the Notes to the Financial Statements. These presentation requirements must be observed as failure to do so will disqualify the taxpayer from claiming the NOLCO as a deduction.
At this time when most are having financial difficulty, businessmen are looking for ways on how to recuperate and pivot their businesses. This regulation will not only help taxpayers to maximize tax benefits but most importantly, this will help them in getting back on track.