Clarity in compliance: The impact of RMC 81-2025 on business expense deductions

From a business standpoint, RMC 81-2025 calls for a shift from reactive tax management to purposeful tax governance, where compliance becomes a reflection of corporate integrity.

- JAY A. BALLESTEROS

In the realm of taxation, clarity is power. With the issuance of Revenue Memorandum Circular (RMC) No. 81-2025, the Bureau of Internal Revenue (BIR) has taken a bold step toward reaffirming the principles of fairness, transparency, and accountability in tax reporting.

This circular, which reiterates the criteria and guidelines for the deductibility of ordinary and necessary business expenses, can potentially reshape the landscape of income tax rules and the role of regulatory interpretation in the Philippine tax system.

THE CORE OF RMC 81-2025

RMC 81-2025 reiterates the criteria for and guidelines on the deductibility of ordinary and necessary business expenses under Section 34(A)(1)(a) of the National Internal Revenue Code (NIRC) of 1997, as amended. While the language of the circular emphasizes reiteration, the tone and structure suggest a deeper intent: to refine the boundaries of what is considered deductible and to reframe the expectations around documentation, substantiation, and reasonableness.

The circular outlines that for an expense to be deductible, it must be ordinary: one that is normal, usual, and customary in the type of business conducted by the taxpayer. It does not need to be habitual or recurring but should be common in the context of the business. It denotes that the expense must be typical and usual in relation to the business activities.

It must also be necessary, appropriate and helpful for the development of the taxpayer's business. This implies that the expense should be directly connected and proximately resulting from carrying on the business and must contribute to the generation of income or profit or minimizing a loss.