preferential notes tax PDF

Preview

Summary

SPECIAL TAX LAWSSENIOR CITIZENSSenior Citizens refers to any Filipino citizen who is a resident of the Philippines, and who is sixty (60) years old or above.It may apply to senior citizens with dual citizenship status provided they prove their Filipino citizenship and have at least six (6) months re...

Description

SPECIAL TAX LAWS SENIOR CITIZENS Senior Citizens refers to any Filipino citizen who is a resident of the Philippines, and who is sixty (60) years old or above. It may apply to senior citizens with dual citizenship status provided they prove their Filipino citizenship and have at least six (6) months residency in the Philippines. (Sec. 2[a] of Revenue Regulations (RR) No. 7-2010) RR No. 7-2010 implements the tax privileges provision of RA No. 9994 and prescribes the guidelines for the availment of such privileges. It is complemented by Revenue Memorandum Circular (RMC) No. 38-2012. SENIOR CITIZENS LAWS On April 23, 1992, Republic Act (RA) No. 7432 was passed, otherwise known as, AN ACT TO MAXIMIZE THE CONTRIBUTION OF SENIOR CITIZENS TO NATION BUILDING, GRANT BENEFITS AND SPECIAL PRIVILEGES AND FOR OTHER PURPOSES. The BIR then issued RR No. 2-94 to implement the tax privileges of the senior citizens and taxpayers dealing with them. Additional benefits were later on provided under RA No. 9257, enacted on dated July 22, 2003, otherwise known as the Expanded Senior Citizens Act of 2003. RA No. 9257 was further amended by RA No. 9994 or the Expanded Senior Citizens Act of 2010, for which RR No. 7-2010 was issued by the BIR. On March 9, 2015, RA No. 10645 was enacted granting mandatory Philhealth Coverage to all senior citizens the funding of which will come from RA No. 10351 or the Sin Tax Law. INCOME TAX OF SENIOR CITIZENS Even though Section 3 of RR No. 7-2010 mentions income tax, there is no real benefit/privilege provided to senior citizens. They are subject to income tax on income earned from the practice of profession, for doing business and/or on their compensation income like everybody else. They are likewise subject to the final taxes on passive income and capital gains tax provided under the Tax Code. However still, they remain to be covered by the exemptions granted to other individuals. As such, a senior citizen will not be subject to income tax: 1.

If he/she qualifies as a Minimum Wage Earner (MWE) exempt from income tax under the last paragraph of Section 24(A)(2) of the Tax Code. As an MWE, the senior citizen will not be subject to income tax and is not required to file an income tax return. Likewise, his holiday pay, overtime pay, night shift differential pay and hazard pay are covered by the exemption. Being exempt from income tax, their compensation income is likewise not subject to the Withholding Tax on Compensation under Section 2.78.1(B)(13) and (14) of RR No. 2-98, as amended.

2.

If the gross income earned by the Senior Citizen does not exceed his personal exemptions (basic and additional). This is logical, because his/her taxable income would be zero or less. Note, however, that under the TRAIN (beginning Jan. 1, 2018), there no more deductible personal and additional exemptions. But the first P250,000 of the taxable income is exempt from income tax. The Senior Citizen then would not be required to file an income tax return.

No additional exemptions for benefactors: although a senior citizen may qualify as a dependent as defined under the law, the taxpayer-benefactor will not be entitled to an additional exemption of P25,000 since the same is only available for dependent children and persons with disabilities. (Sec. 11 of RR No. 7-2010) Additional Deduction from Gross Income of Private Establishments for Compensation Paid to Senior Citizens: an additional fifteen percent (15%) of the total amount of compensation paid to senior citizens may be claimed by the employer, subject to the following conditions: 1. The employment shall have to continue for a period of at least six (6) months; 2. The annual taxable income of the Senior Citizen does not exceed the poverty level as may be determined by the NEDA thru the National Statistical Coordination Board. For this purpose, the Senior Citizen shall submit to his employer a sworn certification that his annual taxable income does not exceed the poverty level. (Section 12 of RR No. 7-2010) VALUE-ADDED TAX (VAT) A senior citizen is exempt from VAT on his purchases under Section 10 of RR No. 7-2010. In fact, the sellers are precluded from billing the VAT to the senior citizen in order to ensure full entitlement to such exemption. The exemption applies even if the senior citizen avails of a promotional discount offered by the establishment instead of the 20% senior citizen discount. (Q21/A21 of RMC No. 38-2012) The input VAT attributable to sales made to senior citizens, exempt as such, are to be treated as deductible expenses and not as tax credits. Note, however, that the VAT exemption is only for his/her purchases since a senior citizen may still be liable for VAT on his/her sales and/or receipts in the conduct of business or in the practice of profession as provided under Section 9 of RR No. 7-2010.

Percentage taxes: the exemption does not cover percentage taxes. Thus, if sales are made to senior citizens by establishments who are not subject to VAT because their sales do not exceed the threshold amount of P1,919,500 (now P3,000,000), the sales are not exempt from percentage taxes. (Q23/A23 of RMC No. 38-2012) Note, however, that Sec. 116 (Other Percentage Taxes), as amended, provides that “any person whose sales or receipts are exempt under Section 109(BB) [the Threshold Provision] from the payment of VAT shall pay an equivalent of 3% of his gross sales or receipts”. Effectively, those which are exempt under Section 109 (A) to (AA) are likewise exempt from the 3% OPT. Considering that under the TRAIN, sale or lease of goods and services to senior citizens under RA No. 9994 is already considered a VAT-exempt transaction under Section 109(W), it should likewise be considered exempt from the 3% OPT. The same is true as regards qualified purchases of PWDs. DISCOUNT PRIVILEGES 1.

Under Section 4 of RR No. 7-2010, all establishments, supplying any of the following goods and services as specified under the Senior Citizens Act, for their exclusive use and enjoyment or availment, shall give a discount of twenty percent (20%): a.

Medicines, including influenza and pneumococcal vaccines, and such other essential medical supplies, accessories and equipment to be determined by the Department of Health (DOH). For this purpose, the term "medicines" shall refer to both prescription and nonprescription medicines, and articles approved by the BFAD-DOH, which are intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease in man; but do not include food and devices or their components, parts, or accessories. The 20% discount and VAT exemption shall also be granted to: 1. Purchase of vitamins and mineral supplements which are medically prescribed by an attending physician for prevention and treatment of diseases, illness, or injury whose prescription is in the name of the Senior Citizen; 2. Purchase of eyeglasses, hearing aids, dentures, prosthetics, artificial bone replacements like steel, walkers, crutches, wheelchairs whether manual or electric-powered, canes/quad canes, geriatric diapers, and other essential medical supplies, accessories and equipment by or for senior citizens.

b.

On the professional fees of attending physician/s in all private hospitals, medical facilities, outpatient clinics and home health care services, where the discount shall be based on the compensation for services charged from the Senior Citizen.

c.

On professional fees of licensed professional health workers providing home health care services as endorsed by private hospitals or employed through home health care employment agencies, where the discount shall be based on the fees charged from the Senior Citizen.

d.

On medical and dental services, diagnostic and laboratory fees in all private hospitals, medical facilities, outpatient clinics, and home health care services, in accordance with the rules and regulations to be issued by the DOH, in coordination with the Philippine Health Insurance Corporation (PhilHealth). "Medical services" refers to hospital services, professional services of physicians and other health care professionals and diagnostic and laboratory tests that are necessary for the diagnosis or treatment of an illness or injury. "Dental services" refers to oral examination, cleaning, permanent and temporary filling extractions and gum treatments, restoration, replacement or repositioning of teeth, or alteration of the alveolar or periodontium process of the maxilla and the mandible that are necessary for the diagnosis or treatment of an illness or injury. "Home health care service" refers to health or supportive care provided to the Senior Citizen patient at home by licensed health care professionals to include but not limited to, physicians, nurses, midwives, physical therapists and caregivers.

e.

In actual fare for land transportation travel in public utility buses (PUBs), public utility jeepneys (PUJs), taxis, Asian utility vehicles (AUVs), shuttle services and public railways, including Light Rail Transit (LRT), Mass Rail Transit (MRT), and Philippine National Railways (PNR).

Toll Fees are not the same as “fares”. Hence, it is not subject to the 20% discount and VAT exemption. (Q18/A18 of RMC No. 38-2012) Taxi Fares are subject to the 20% discount. (Q19/A19 of RMC No. 39-2012) f.

On actual transportation fare for domestic air transport services and sea shipping vessels and the like, based on the actual fare and advanced booking.

g.

On the utilization of services in hotels and similar lodging establishments, restaurants and recreation centers. For hotels and similar lodging establishments, the discount shall be for room accommodation and other amenities offered by the establishment, such as, but not limited to, massage parlor, sauna bath, food, drinks and other services offered. For recreation centers, the discount shall be for the utilization of services in the form of fees, charges and rental facilities, such as, but not limited to, sports facilities and equipment. For restaurants, the discount shall be for the sale of food, drinks, dessert and other consumable items served by the establishments, including value meals and promotional meals offered for the consumption of the general public, subject to the following rules: 1. For Dine-in services, the privilege must be personally availed of by the senior citizen and no proxies or authorization in favor of another person who is not a senior citizen will be honored.

2.

The phrase "exclusive use and enjoyment" of the senior citizen shall mean " for the senior citizen's personal consumption" only. As such, the 20% senior citizen discount shall not apply to "children's meals" which are primarily prepared and intentionally marketed for children. Similarly, the 20% senior citizen discount shall not apply to "pre-contracted" party packages or bulk orders. ILLUSTRATIVE EXAMPLE: X, a senior citizen, together with his son Y and the latter’s wife and 2 children went to a restaurant to dine. How much will be the senior citizen discount if (A) the orders are individualized, where each meal costs P200, exclusive of VAT; or (B) the orders are NOT individualized, and the total bill is P1,120. A.

P40 (P200 * 20%)

Since the meals are individualized, only the P200 pertaining to the consumption of the senior citizen will be subject to the discount. B.

P40 formula, as follows: Total Bill Amount (exclusive of VAT) Number of customers

x

20%

=

senior citizen discount

Total bill amount exclusive of VAT is P1,000 (P1,120/1.12), the number of customers is 5, so the portion of the bill pertaining to the senior citizen is P200, applying the 20% rate, the discount is P40. Note: 1. This formula will apply if no "individualized" food item can be ordered or if the transaction with the Senior Citizen is not processed separately. 2. The total billing amount used in the computation of the 20% discount of the Senior Citizen is the amount exclusive of VAT. 3. It is recommended by the BIR that the purchases of the senior citizens be processed separately as independent transactions.

(Q1/A1 of RMC No. 38-2012) Specific Items: a. b.

3.

Cake – a purchase of a whole cake may be considered a group meal or meal for sharing if it is good for more than one person. As such , only the value attributable to the senior citizen/s of the group will be subject to the discount. (Q12/A12 of RMC No. 38-2012) Pizza – similar to a pizza purchased by a senior citizen, the classification will depend on whether the pizza is good for a group or for a single serving. (Q13/A13 of RMC No. 38-2012) Food, drinks and other consumable items purchased by the senior citizen shall be processed separately as an independent transaction from his/her non-eligible companions to ensure that it is for his/her exclusive consumption and to enable computation of the 20% discount and the exemption from VAT, which only the senior citizen is entitled to.

Other Consumable Items: include condiments and side products. (Q2/A2 of RMC No. 38-2012) Beer, Wine and Other Liquors – Generally, alcoholic beverages are not subject to the 20% discount and VAT exemption especially if purchased in bulk, buckets or cases. However, if served as a single drink, its purchase by a senior citizen is entitled to the 20% discount and VAT exemption. If purchased in a bar, club or cabaret not subject to VAT but subject to 18% amusement tax, the RMC provides that the senior citizen may still avail of the discount on purchase of alcoholic drinks but only for a single serving. (Q14/A14 of RMC No. 38-2012)

Cigars and Cigarettes are not covered by the discount and exemption considering that they are not “food” or “essential items.” (Q15/A15 of RMC No. 38-2012) 4.

However, if the group of diners is composed entirely of senior citizens, all of whom present valid senior citizens IDs, each shall be entitled to a 20% discount and exemption from Value Added Tax.

5.

The 20% discount shall apply to Take-Out/Take-Home/Drive-Thru orders (excluding bulk orders) as long as it is the senior citizen himself/herself who is present and personally ordering, and he/she can show a valid senior citizen ID card. This is true even if the senior citizen merely takes home an unfinished or unconsumed dine-in order. Provided, that the leftover is not part of bulk orders. (Q5/A5 of RMC No. 38-2012)

6.

For Delivery Orders (excluding bulk orders), the 20% discount shall likewise apply subject to certain conditions; i.e., senior citizen ID card number must be given while making the order over the telephone; the senior citizen ID card must also be presented upon delivery to verify the identity of the senior citizen entitled to the 20% discount. Delivery fee charged separately are not entitled to the discount and is subject to tax. “Bulk orders” are within the context of pre-contracted or pre-arranged group meals or packages, and hence, not entitled to 20% discount and VAT exemption. (Q7/A7 of RMC No. 38-2012) In case of group phoned-in or called-in orders, the food establishment must determine the number of senior citizens composing the group and the 20% discount shall be computed based on the value of the food attributable to the qualified senior citizen. The Senior Citizen ID card number/s must be given while making the order and the ID card/s must be presented upon delivery to verify the identity of the senior citizen/s entitled to the 20% discount and VAT exemption. (Q11/A11 of RMC No. 38-2012)

Delivery fees/charges, if not billed separately, is subject to the 20% discount. Otherwise, it is not entitled to the 20% discount and VAT exemption. (Q17/A17 of RMC No. 38-2012)

7.

For the above-mentioned transactions, the Most Expensive Meal Combination (MEMC) shall apply to food purchases by senior citizens. The MEMC is an amount corresponding to the combination of the most expensive and biggest single-serving meal with beverage served in a quick service restaurant, is deemed flexible and is adjusted accordingly by food establishments to estimate a single food purchase for an individual senior citizen.

Pasalubong items: which are single-serving/solo meal for the personal and exclusive consumption of the Senior Citizen are entitled to the 20% discount, as well as the exemption from VAT. However, other "pasalubong" food items (e.g. box of biscocho, bottles or jars of ginamos, several packets of mango preserves, etc.) which are not for the personal and exclusive consumption of the Senior Citizen are NOT entitled to 20% discount and VAT exemption. This limitation extends to "novelty items" or non-consumables sold in restaurants (Q10/A10 of RMC No. 38-2012) h.

On admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement, where the discount shall be on the admission fees charged by the said establishments;

i.

On funeral and burial services for the death of Senior Citizens. The beneficiary or any person who shall shoulder the funeral and burial expenses of the deceased Senior Citizen shall claim the discount, such as casket, embalment, cremation cost and other related services for the Senior Citizen upon payment and presentation of his death certificate;

No limit as to the amount of discount: in no case shall the discount granted to senior citizens be less than 20%. There should be no fixed, maximum amount or cap which will limit the discount below the rate of 20%. (Q3/A3 of RMC No. 38-2012) Note, however, that there is a limit of 100kwh for electricity and 30cubic meters for water consumption for purposes of the 5% discount on utilities and a P1,300 per week limit on their purchase of basic necessities and prime commodities as discussed below.. 2.

Likewise, The monthly utilization of water and electricity by the Senior Citizen supplied by public utilities will be subject to a five percent (5%) discount upon concurrence of the following: a. The individual meters for the said utilities are registered in the name of the Senior Citizen residing therein; b. The monthly consumption does not exceed one hundred kilowatt hours (100kwh) of electricity and thirty cubic meters (30 m3) of water; and c. The privilege is granted per household regardless of the number of Senior Citizens residing therein.

3.

Senior citizens are likewise entitled to a 5% special discount on basic necessities and prime commodities.

Toiletries are not covered by any discount: toothpaste, bath soap, tissue papers are not entitled to the 5% special discount. Only items listed under RA No. 7581 or the Price Act are identified as Prime Commodities and Basic Necessities entitled to the 5% special discount. However, powdered, liquid, bar laundry and detergent soap are considered basic necessities subject to 5% special discount. (Section 2, Joint DTA-DA Administrative Order 10-02, Series of 2010) Discount limit: The DTI and the DA issued joint DTI-DA Administrative Order No. 10-02, Series of 2010, after combining set limits under prime commodities and basic necessities, setting the maximum limit to P1,300 per calendar week, without carryover of unused amount. (Sec. 3, Joint DTI-DA Administrative Order No. 10-02, Series of 2010, Q34/A34 of RMC No. 38-2012) No VAT Exemption: while the purchase of basic necessities and prime commodities are subject to a discount, the same are not covered by the VAT exemption. (Q32/A32, RMC No. 38-12) Basic necessities: are goods vital to the needs of consumers for their sustenance and existence such as, but not limited to, rice; corn; root crops; bread; fresh, dried or canned fish and other marine products; fresh pork, beef and poultry meat; fresh eggs, potable water in bottles and containers; fresh and processed milk; fresh vegetables and fruits; locally manufactured instant noodles; coffee; cof...