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Best work yet despite flaws

Detroit: Become Human
PC via Epic Store
Beyond: Two Souls
PC via Epic Store

GAMERS have long learned to be wary of releases trumpeted as “story-driven” experiences. Time and time again, these titles have proven unworthy of the hype; lacking focus in gameplay elements, they wind up being little more than amusing distractions. And such seemed to be the fate of Detroit: Become Human when it first hit store shelves in early 2018. Written by noted developer David Cage and published by Paris-based Quantic Dream (which he not coincidentally founded), it seemed consigned to suffer the same fate of other games in its genre. After all, it did fall into the same traps, showing, on the outside, an ostensible over-reliance on quick-time events (QTEs) and button prompts, a devaluation of photorealistic graphics with wonky controls, and predisposition for heavy-handed messaging.

For all the misgivings, however, Detroit: Become Human actually manages to stand out. Even as it does struggle on occasion, it delivers on its promise to keep gamers who brave its rougher edges immersed from the get-go. It certainly tells its story in compelling fashion: Androids have become widespread in use, practically serving as the titular city’s workforce — albeit not without complications. Friction with humans during this tumultuous period is seen through the unique perspectives of three androids: Connor, an investigator hot on the pursuit of rogue elements; Kara, a housekeeper forced to put up with her abusive owner; and Markus, a crusader bent on freeing other androids from virtual enslavement.

Each branch of Detroit: Become Human provides a compelling vantage point: scenarios alternate from character to character, giving gamers the opportunity to shape the stories as they please. By interacting with objects, choosing dialogue replies, and succeeding or failing in QTEs, they wind up influencing important parts of the overarching narrative; who lives, who dies, who gets hurt, and so on. It’s far from a novel concept, and Quantic Dream has explored it before — in Heavy Rain, released in 2010, for example. While the gameplay is similar, however, the impact of choices now appears more pronounced and more pliable to change and interaction.

Indeed, the game offers a whole swath of alternate storylines, each fully capable of leading gamers down many different, smaller paths with their own variations. It even goes out of its way to underscore the disparity in choices, showing glimpses of what could have been instead of what is. Needless to say, it winds up highlighting its immense replay value. And, in this regard, it is aided in no small measure by its oppressive atmosphere, engaging dialogues, and outstanding audio-visual presentation. As good as it may have looked and sounded when it debuted on the Sony PlayStation 4, it provides an even better experience on the personal computer. It runs at a smooth 60 frames per second, and offers both controller and keyboard support.

To be sure, Detroit: Become Human is far from perfect. In fact, it suffers from a variety of flaws that are hard to ignore. As is typical of Cage’s outputs, it focuses heavily on its story and movie elements rather than gameplay, and the bias shows. While the narrative does allow for independence of action, there is a decided lack of flair and precision in execution. Most of the interaction is possible only through QTEs, or through the efforts of gamers in awkwardly nudging the particular character they’re controlling against the environment until a button pops up. Neither makes for spontaneity.

Parenthetically, Detroit: Become Human can be ham-fisted. While admittedly engaging, the story suffers from a very glaring lack of subtlety. For instance, the drunken cop that Connor partners up with has about as much nuance as the abusive father and owner that Kara must serve. That’s not to say that the characters aren’t interesting; they do have their own arcs that depend on gamer choices while serving to further the enveloping narrative. At the same time, they bank on tropes seemingly plucked from a tome of cliches.

Still and all, Detroit: Become Human stands out as Cage’s best work by far. It presents a captivating story built around oppression. Never mind its decision to chuck subtle beats in favor of maximum impact. For all its haphazard storytelling, it does an outstanding job of sucking gamers in at the outset and keeping them engrossed until the very end. And, at $24.99, it gives excellent bang for the buck as a 15-hour ride showcasing the best technology has to offer.

THE GOOD

• Great story beats with interesting characters

• A plethora of alternate dialogue and paths to take

• High replay value

THE BAD:

• Fairly unimaginative gameplay, with majority based on exploration and QTEs

• Cliched characters and story set pieces

• Relatively short length

RATING: 8/10

POSTSCRIPT

Cage can stir a lot of mixed emotions. Some view him as a fraud, pointing to his creations’ lack of interesting gameplay. Others consider him a visionary, praising his genius in bringing theater-quality entertainment to gamers’ homes. No matter the reactions he elicits, however, he is clearly passionate about his works; everything he does is very much a product of his own beliefs and designs. Which, perhaps, is the best way to describe Beyond: Two Souls — it’s very much the golden standard of what he presents and represents. Originally released as a PlayStation 3-exclusive title back in October of 2013, it found its way to the PS4 two years later, and now has a home on the PC through the Epic Store. At seven years old, how well does it hold up on brand-new hardware?

In the game, gamers follow the story of Jodie, a girl who makes a connection to a mysterious spirit being by the name of Aiden. Her bond with it has granted her abilities that no normal human can posses. These, in turn, make her a target, and soon she finds herself a pawn of people who both fear her power and wish to exploit it for their own ends. The premise, while interesting, works mainly because of how good the title looks. During its launch, its graphics were already quite good; on the PC, they’re absolutely stellar. It’s hard to imagine that the game is half a decade old when it renders characters and scenes so vividly.

As real as the visuals may seem, however, the story is anything but. While the premise is great, Beyond: Two Souls’ overall narrative tone proves wanting at best, lacking any subtlety in its message. Jodie’s predicament could have been explored any which way, but is instead presented sans any restraint; gamers are slammed over the head with theme after theme, allowing for little time to let any stew. Now and then, its story shows promise. After it lures you in with tales of intrigue and deception, however, its momentum falters, and its key moments tend to fall flat. Even during its most entertaining set pieces, its flaws tend to stick out. Action-filled segments try their hardest to get the blood pumping, but the payoffs don’t come close to rewarding the build-ups.

At the same time, Beyond: Two Souls relies on gameplay that is best described as the opposite of fun. Gamers get to do some QTEs, explore surrounding areas, watch a few cutscenes — and then rinse and repeat. The process isn’t flawed in and of itself. Unfortunately, the controls — whether via the controller or via a keyboard-and-mouse combination — feel floaty and unresponsive. Which is just too bad given its potential, and which makes it hard to recommend to any but the most diehard of Cage fans. It set out to be a compelling tale of a woman struggling with her marvelous, dangerous powers. It wound up becoming a reminder that implementation, of relative lack thereof, can stunt even the best of intentions. (6/10)

THE LAST WORD
Developer Obsidian last year surprised the gaming community by announcing work on Grounded. While otherwise known for its role-playing games, it indicated its intent to spread its wings by dipping its toes in the survival genre. Gamers are slated to control shrunken children aiming to overcome a backyard environment. Progress appears to be moving quickly, as its latest title now has a Steam page. Early Access release, which will feature around a fifth of the complete storyline via single and online play, is forthcoming.

Are Filipinos better off?

Are Filipinos better off?

How PSEi member stocks performed — February 24, 2020

Here’s a quick glance at how PSEi stocks fared on Monday, February 24, 2020.

 

Malacañang lowers 2020 OFW remittance growth assumption

THE coronavirus outbreak is expected to shave 0.8 percentage points off the growth of overseas-worker remittances, bringing the total amount expected to about $34.2 billion, Malacañang said in a briefing Monday.

Cabinet Secretary Karlo Alexei B. Nograles said growth estimates in Overseas Filipino Worker (OFW) remittances have been adjusted downwards to 2.2% to account for the impact of the outbreak of coronavirus in China and beyond. The virus is formally known as Covid-19.

Mr. Nograles characterized the hit to growth as “minimal.”

“We have adjusted our growth projections to 2.2% and now expect $34.2 billion in remittances for 2020. Nevertheless, this shall still (be) another record high in Overseas Filipino remittances,” he said.

The Bangko Sentral ng Pilipinas (BSP) last week reported an OFW personal remittance total for 2019 of $33.46 billion, up 3.9%.

Mr. Nograles said that China remittances only account for 0.1% of total OFW remittances. Macau and Hong Kong have shares of 0.4% and 2.7% respectively.

Mr. Nograles added that remittances from other countries where OFWs reside such as the US, the United Arab Emirates, and Saudi Arabia can take up the slack when remittance growth from China and its territories falls off.

“Remittances from other source countries such as the US, UAE and Saudi Arabia may help compensate for the possible slowdown in remittances coming from China, Macau and Hong Kong and we are encouraged by historical data that shows that Philippine remittances have been resilient even in the face of global downtrends,” he said. — Gillian M. Cortez

House panel finds significant underspending in RCEF budget

A HOUSE COMMITTEE has found significant underspending in the Rice Competitiveness Enhancement Fund (RCEF), with about P1.3 billion in spending accounted for out of the program’s P10-billion budget in the first year of the Rice Tariffication Law.

The spending levels were disclosed to the House Committee on Agriculture and Food’s rice subcommittee by the Department of Agriculture (DA) Monday.

Assistant Secretary Dr. Andrew B. Villacorta told the subcommittee that the P1.3 billion worth of RCEF funds was spent on seed and equipment.

RCEF is a component of the Rice Tariffication Law signed in February 2019. It receives P10 billion a year from rice import tariffs in order to finance the modernization of the rice industry. Authorized spending items are purchases of equipment, seed and fertilizer, as well as training and access to credit.

The Rice Tariffication Law, or Republic Act 11203, removes the restrictions on rice import volumes. Starting in March 2019, importers were instead charged a 35% tariff on imported grain from Southeast Asia.

Competition from cheap grain imports softened the market for domestically-grown rice, depressing farmer incomes.

The law stripped the National Food Authority (NFA) of its importing functions and limited its operations to domestic procurement of palay, or unmilled rice, after a shortage in subsidized NFA rice stocks in late 2018 triggered an inflation crisis.

The NFA pays farmers a support price of P19 per kilogram. However, the NFA does not have sufficient funds or storage to buy the entire harvest, leaving farmers to accept price offers in the single digits in some places from private traders.

Representative Josephine Ramirez-Sato of Occidental Mindoro said relief measures for farmers should include regular subsidies.

“Before the passage of the Rice Tariffication Law, wala talaga tayong institutionalized and regular subsidies given to the farmers, kaya hindi talaga tayo magiging competitive sa Vietnam or Thailand. Every planting season, naga-abang ang mga farmers (We have no institutionalized subsidies for farmers, which holds back our competitiveness compared with Vietnam or Thailand. Rice farmers are left hanging every planting season),” Ms. Ramirez-Sato said.

Agriculture Secretary William D. Dar said RCEF-funded operations include 245 technical briefings, the distribution of various training materials, and 14,595 scholarship grants.

Land Bank of the Philippines (LANDBANK) released P459.63 million worth of loans to 2,469 farmers and 19 cooperatives. — Revin Mikhael D. Ochave

CITIRA passage seen helping stem exit of multinational firms

THE PASSAGE of a corporate tax reform bill is expected to remove investor uncertainty which could help counteract the effects of a recent spate of closures among multinational firms operating in the Philippines, a senior legislator said.

Representative Jose Maria Clemente S. Salceda of Albay, who also chairs the House ways and means committee, said the recent closures highlight the urgency of passing the proposed Corporate Income Tax and Incentives Reform Act (CITIRA) “to end the wait-and-see mode of companies” and turn their investment pledges into actual investments which will create jobs to “offset losses from recently-announced closures.”

CITIRA, which will gradually bring down corporate tax rates while rationalizing incentives, is awaiting Senate approval after having been passed by the House in September, with the recent closures of Philippine operations by a Japanese automaker, a US bank and a Finnish telecommunications firm being enlisted in the effort to hurry the Senate along before session is suspended for the Easter break.

Mr. Salceda said he could call in the Department of Trade and Industry (DTI) to brief the House on the “trade-related aspects” affecting manufacturing competitiveness in the Philippines after the decision by Honda Cars Philippines to shut down automobile production in Sta. Rosa, Laguna.

“The committee is studying how to optimize tariff rates as a safeguard. Anti-dumping, countervailing, and other trade laws now in effect were also authored by this representation. The DTI may be called to the House to brief the leadership on what it proposes, given the trade-related aspects of manufacturing issues in the country,” Mr. Salceda said in an aide-memoire Monday.

Mr. Salceda has said that the committee is open to adopting a Senate version of CITIRA “that is fiscally acceptable, including the Fiscal Incentives Review Board (FIRB) expansion, and does not facilitate transfer pricing and other corporate maneuvers to avoid tax, such as breaking up into smaller companies to avail of what some Senators propose as lower taxes for smaller firms.”

Mr. Salceda said the broader issue of manufacturing competitiveness demands analysis of national factors such as the cost of doing business, to “determine the most suitable response” to the closure of businesses.

“But it appears that the problems these firms had were imported from abroad. In any case, we are studying the issues. Right now, our national fundamentals are still stable. Tomorrow, I am briefing Congressional leadership and propose calm but decisive action,” he said.

Aside from Honda, Wells Fargo & Co. and Nokia Corp. are also “leaving the Philippines not because of country-specific reasons, but because of issues of cost and competitiveness within the companies themselves,” Mr. Salceda said, adding that the companies’ problems in the Philippines are “basically imported.”

“There are firm-specific issues among all the cited companies. Wells Fargo was slapped with a $3 billion fine in the US. Honda has been overwhelmed by competition in the small-sedan segment. And Nokia has retreated globally as a technology firm,” he said.

Mr. Salceda said Honda’s problems are “primarily competitiveness-related” as its market share has been eroded by competitor Toyota Motor Corp.

Wells Fargo & Co. is downsizing its business process outsourcing operations in the Philippines, leaving only 50 tech workers out of 750 by the end of 2020, Mr. Salceda said.

He said the restructuring is part of the company’s “global workspace strategy,” which he believes simply indicates that it wants to “reduce costs after having been hit by a $3-billion fine.”

Meanwhile, the Nokia Technology Center Philippines in Quezon City is closing down this year, which, according to Mr. Salceda, will affect 700 IT professionals and administrative staff.

“The move is not isolated to the Philippines. The planned closure of Nokia Technology Center Philippines is parallel to Nokia’s problems in its home country in Finland, where it will make 180 job cuts as part of a plan to slash 500 million euros in operating costs,” he said. — Genshen L. Espedido

Power demand growth seen requiring more plants, use of ILP

THE so-called “power bloc” of legislators concerned with energy-sector issues said the energy department is not approving power plants fast enough to keep up with growing demand, and called for measures to slow down this growth ahead of another likely electricity shortage during the dry months.

Dalawa po ang posibleng dahilan nito: kakulangan ng mga planta na 1) tumatayong ancillary services ng grid at 2) kakulangan ng mga bagong planta na pupuno sa tumataas ng taunang demand ng kuryente (There are two possible explanations: the lack of power plants which provide ancillary services to the grid and of new plants to keep up with the annual growth in power demand),” Association of Philippine Electric Cooperatives (APEC) Rep. Sergio C. Dagooc said in a news conference.

Mr. Dagooc said that the government owns only one ancillary plant in Luzon which it plans to auction this year.

He added that only two power plants in the Visayas are newly-commissioned. Mindanao has one power plant and Luzon has none.

Samakatuwid, ang kakulangan ng mga bagong planta ay nagpapatunay lamang na hindi na po sapat ang available capacity upang tugunan ang annual demand growth rate lalong-lalo na dito sa Luzon at medyo kulang ang Department of Energy (DoE) sa kanilang trabaho. Ito kasi ang mandate nila, pero mukhang baka iba na ang kanilang pinagkakaabalahan (The dearth of new plants proves that capacity is insufficient to meet demand growth, especially in Luzon, and that the DoE has not fulfilled its mandate. It looks like it is preoccupied with other things),” he said.

Rep. Adriano A. Ebcas Ako Padayon Pilipino Party List, which was formed by power co-ops and focuses on electricity consumer rights, recommended the adoption of the “demand-side management” to help mitigate power shortage in the dry season. Mr. Ebcas said this would require electric cooperatives to “implement load curtailment or load-shedding from large power consumers as needed.”

Kaming mga electric cooperatives are in close coordination with the Department of Energy para sa implementasyon ng Interruptible Load Program (ILP) sa Luzon, Visayas at Mindanao (We electric co-ops are in close coordination with the DoE to implement the ILP on Luzon, the Visayas and Mindanao),” he said.

ILP was established by the DOE and the Energy Regulatory Commission (ERC) to help mitigate supplies deficiency in the Philippines “until new capacity become available on the grid.” It enlists large power consumers to use their internal power-generating resources during shortages.

Mr. Ebcas also encouraged companies with embedded generators to “de-load and participate in ILP in order to leave enough supply for residential consumers, especially during peak hours.”

“Under this program, ILP participants will be compensated by the distribution utility for their fuel cost. Ito rin ay nanghihikayat para sa ating mga ECs na maghanda at gumamit ng mga embedded generation sets kung sakaling hindi maabot ng aming mga supply ang mataas na demand ng kuryente (I also hope this persuades co-ops to use their own generation sets in the event supply is lacking or demand is high),” he said. — Genshen L. Espedido

Rice tariffs decline 23.1% year-to-date

RICE IMPORT tariffs declined 23.1% year-on-year in the year-to-date period ending Feb. 14, amid a sharp decline in inbound shipments, the Bureau of Customs (BoC) said.

Citing a report from the BoC, the Department of Finance (DoF) said in a statement that import tariff collections totaled P1.71 billion, against P2.22 billion a year earlier.

Volumes fell 61.8% year-on-year to 209,320 metric tons (MT).

The Rice Tariffication Law, or Republic Act No. 11203, was signed in mid-February 2019, and took effect in March. It removed restrictions on rice imports, and instead imposed a 35% tariff on shipments of rice from Southeast Asian trading partners. The tariffs will help fund the modernization of the rice industry.

In the 2019 period when the law was effective, the government collected P12.3 billion from 2.03 million MT of imports.

Until Feb. 14, 2020, total collections have amounted to P14.01 billion since the law took effect.

Finance Secretary Carlos G. Dominguez III said the revenue gives the government “ample means to do even more to make our agricultural production more efficient and extend direct aid to small farmers.”

The government must set aside P10 billion a year for five years from the tariffs to support the Rice Competitiveness Enhancement Fund (RCEF), which will fund farm mechanization, agricultural credit and training, and inputs such as fertilizer and seed.

The DoF said the law generated billions in fresh revenue in less than one year of implementation, “a complete reversal of its P11-billion average annual loss during the pre-RTL regime.” — Beatrice M. Laforga

Tunnel boring machine arrival signals imminent start to digging phase of subway line

THE Department of Transportation (DoTr) unveiled on Monday parts of the specialized underground equipment which will be used to help build the Metro Manila build its first subway line, heralding the imminent start of the line’s tunnel construction phase.

The tunnel boring machine (TBM) from Japan automates the digging process by reinforcing the tunnel as it digs, reducing the need for a separate operation to shore up the tunnel wall to prevent the works from collapsing.

“TBMs have the advantage of limiting the disturbance to the surrounding ground and producing a smooth tunnel wall. This significantly reduces the cost of lining the tunnel, and makes them suitable to use in heavily urbanized areas,” the DoTr said in a statement.

Transportation Undersecretary for Railways Timothy John R. Batan has said that the target was to begin tunneling works within the year.

“This unprecedented utilization of a massive construction resource is testament to the commitment of the DoTr in ensuring the delivery of major transport infrastructure in the soonest possible time,” the department said.

The government broke ground for the first three stations (Quirino Highway, Tandang Sora and North Avenue) of the subway project in February last year after the DoTr signed a P51-billion deal for that package with the Shimizu joint venture, which is comprised of Shimizu Corp., Fujita Corp., Takenaka Civil Engineering Co. Ltd. and EEI Corp.

The Philippines and Japan signed in March 2018 the first tranche of the P355.6-billion loan for the Metro Manila subway project.

While the public will have to wait until 2025 for full operations of the 36-kilometer subway, the government targets partial operations — covering the first three stations — by 2021. — Arjay L. Balinbin

PHL to promote more food exports to UK

THE trade department’s Export Marketing Bureau (EMB) hopes to promote food exports to the UK following its exit from the European Union (EU).

“I’m sure they are more than willing — if not, they’re going to be very eager — to dance with us separately from the EU,” EMB Director Senen M. Perlada said in a phone interview Friday.

He said the focus is products from Philippine companies that have certifications from the British Retail Consortium (BRC),which he describes as a “stringent, Rolls Royce-quality certification.”

The BRC sets quality standards for food safety, packaging, consumer products, and storage.

Mr. Perlada said the EMB will be promoting “supermarket items” including processed food and beverages, canned tuna products, snack food, noodles, biscuits, craft gourmet chocolate, and dried fruit and nuts.

He added that the EMB will also be promoting tropical fruit by-products like coconut water, virgin coconut oil, and MCT oil, as well as sugar, sauces, and condiments, among others.

MCT oil is derived from coconut, and its medium-chain triglycerides are thought to provide health benefits.

The UK is retaining a preferential trade scheme with the Philippines that mirrors the latter’s EU privileges after Britain concludes its transition from the EU on Dec. 31, 2020. Under the General Scheme of Preferences plus (GSP+), the Philippines enjoys zero tariffs on up to 6,274 Philippine products exported to the EU.

UK trade envoy to the Philippines Richard Graham told reporters last week that the UK may review opportunities to expand GSP+ in the future, but will maintain the current scheme in the meantime.

Mr. Perlada said the Philippines has not yet proposed changes to the current arrangements with the UK.

“In general, I think the attitude of the UK is to have it business as usual without introducing any drastic changes,” he said. — Jenina P. Ibañez

NCR wholesale prices of construction materials rise in Jan.

WHOLESALE PRICE growth of construction materials in Metro Manila accelerated in January, though the rise in the retail price indicator slowed, the Philippine Statistics Authority (PSA) said.

The construction materials wholesale price index (CMWPI) grew 1.8% year-on-year in January, against a rise of 1.2% in December. ‘The retail-level index, known as the construction materials retail price index (CMRPI) in the National Capital Region slowed to 0.6% in January, after coming in at 0.7% in December.

The acceleration in CMWPI growth was driven by the following commodities: hardware (4.9% from 1.9%), galvanized iron sheets (3.9% from 3.5%), reinforcing and structural steel (0.01% from minus 0.8%), tileworks (16.1% from 4.1%), glass and glass products (7.1% from 0%), electrical works (3.2% from 3.1%), painting works (1.1% from 0.3%), PVC pipes (7.5% from 3.7%), and fuels and lubricants (9.1% from 2.7%).

Slower prices increases were noted in sand and gravel (3.9% from 4.7%), plywood (0.04% from 1.5%), lumber (3.4% from 3.6%), and plumbing fixtures and accessories/waterworks (4.3% from 4.9%).

Growth in concrete product prices was 0.7%, unchanged from the previous month. Flat growth was also noted in asphalt and machinery and equipment rental.

“This wholesale price increase may be attributed to the increase in major construction developments over more retail-type constructions,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

The year-on-year slowdown in the CMRPI in January was led by carpentry materials (0.6% from 1% in December), masonry materials (0.2% from 0.7%), and painting materials and related compounds (1% from 1.3%).

Meanwhile, retail prices accelerated for electrical materials (0.5% from 0.4%), plumbing materials (0.9% from 0.2%), and tinsmithing materials (0.9% from 0.7%).

“Miscellaneous” construction materials declined 0.1% in January, reversing the 0.3% growth recorded in December.

“Major buildings all over the metropolis are continuously being built and it is expected that construction materials prices, in general, are expected to steadily rise as well,” Mr. Asuncion added. — Jobo E. Hernandez

Property, plant, and equipment vital to business operations

Investing in Property, Plant, and Equipment (PPE) is generally a good indication of growth for many businesses. PPE assets represent a fairly large investment with future economic benefits for most companies. While we are just a few months away from filing season, it is high time that we review our treatment of property, plant. and equipment, both for tax and accounting purposes.

PPE BY DEFINITION
International Accounting Standard (IAS) 16, the standard that prescribes the accounting treatment for PPE, defines property, plant, and equipment as tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and that are expected to be used during more than one period. As such, PPE represents important assets necessary for any business operations.

Typical examples of PPE are buildings, equipment, machinery, transportation vehicles, land, furniture, and fixtures that are used in the business.

PPE MEASUREMENT
For accounting purposes, an item of PPE that qualifies for recognition as an asset is initially measured according to its cost, which includes the actual purchase cost and those expenditures that are ordinary and necessary to bring the asset in place and in condition for its intended use, such as: its purchase price, including import duties, nonrefundable purchase taxes, after deducting trade discounts and rebates; any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management (e.g., costs of site preparation, professional fees, initial delivery and handling, installation and assembly, etc.); and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Many expenditures for long-lived assets will surely benefit a business for a certain period. The question is: should these expenditures be capitalized or depreciated over their useful life? For tax purposes, PPE acquisitions should be capitalized over the useful life of the asset that substantially extends beyond the year. The useful life of an asset is usually determined by the taxpayer. However, the initial estimate of the costs of dismantling and removing the item and restoring the site is not part of the cost for tax purposes.

Under IAS 16, PPE is carried either at cost or at revalued amounts, less accumulated depreciation and impairment losses. There should be a reasonable allowance for depreciation to be deducted from gross income. With the fixed asset’s cost as the basis for depreciation, any adjustment due to impairment should not be included for tax purposes.

DEPRECIATION
PPE declines in value over time. Depreciation is the process of allocating the cost of the asset over its useful life to account for a reasonable amount of exhaustion, wear, and tear of the property used in business. It represents how much the value of the asset has been used up. In general, businesses can depreciate assets both for tax and accounting purposes.

A reasonable allowance for depreciable asset is generally allowed under existing tax rules. However, no depreciation deduction will be allowed in the case of property that has been amortized to scrap value and is no longer in use.

There are many types of depreciation, such as the straight-line method and accelerated methods. Existing tax rules prescribe depreciation methods that the taxpayer may choose from, but it will depend on the experience of the taxpayer in determining the method of depreciating the asset. However, should there be any change in the depreciation method used in the business, approval from the Bureau of Internal Revenue (BIR) is needed.

LIMITATION ON DEPRECIATION EXPENSE
Under Revenue Regulations (RR) No. 12-2012, the BIR imposed a limit on the deductibility of depreciation allowance, maintenance expenses, and input value-added tax on motor vehicles as follows: substantiation of the purchase with sufficient evidence, such as with official receipts and other records indicating the price, motor vehicle identification number, chassis number, etc.; the taxpayer has to prove the direct connection of the motor vehicle to the business; one vehicle for land transport is allowed for the use of an official or employee with a value not exceeding P2.4 million; with no depreciation allowed for yachts, helicopters, airplanes, and land vehicles with a value over P2.4 million, unless the vehicle is used in the company’s transport operations or represents a lease of transport equipment.

DERECOGNITION OF PROPERTY
When no future economic benefits are expected from the use or disposal of the PPE, it is derecognized. The gain or loss arising from the derecognition of an item of PPE shall be included in the profit or loss when the item is derecognized. On the other hand, there are certain conditions to be complied with before this is allowed as a deduction for tax purposes.

While property, plant, and equipment are considered vitals component to business operations, this item on the balance sheet should not be taken for granted. It is important that investment and expenditure in PPE are properly monitored, as this signals profitability, responsibility, and taxability.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Maricel P. Katigbak is a manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com

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