Expanding tax benefits for PWDs

Written by Nadine E. Chan.

Based on a 2010 census, about 1,443,000 or 1.57% of the total population in the Philippines are disabled. Republic Act No. 7277, or the Magna Carta for Disabled Persons, defined persons with disability or PWDs as “those suffering from restriction of different abilities, as a result of a mental, physical or sensory impairment, to perform an activity in the manner or within the range considered normal for a human being.” In an effort to achieve social equalization, the government is constantly pursuing measures to improve the quality of life of every Filipino in different sectors, particularly the PWDs.

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To achieve this end, Republic Act (RA) No. 10754 was signed into law last 23 March 2016, granting PWDs additional benefits such as exemption from value-added tax (VAT) on the purchase of particular goods and services on top of the 20% discount previously enjoyed under the Magna Carta as revised by RA No. 9442. Among the items covered by this tax privilege are the following:

• Charges of hotels and other similar lodging establishments, restaurants and recreation centers;
• Admission fees by theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement;
• Purchase of medicines in all drugstores;
• Medical and dental services and professional fees of attending doctors in all government facilities and in all private hospitals and facilities, subject to the guidelines to be issued by the Department of Health, in coordination with the Philippine Health Insurance Corporation; 
• Transportation fares; and
• Funeral and burial services.

*Note that the benefits will only apply if the covered goods and services are purchased for the exclusive use or enjoyment of the PWD. 

Further, those caring for and living with qualified PWD, up to the fourth civil degree of consanguinity or affinity, can claim an additional tax exemption of P25,000 against their annual income tax. Such relations include the taxpayer’s great great grandparent, great aunt or uncle, first cousin, great niece/nephew, or great great grandchild. Under the RA, the PWD, regardless of age, may be considered a qualified dependent subject to additional exemption under Section 35 (b) of the Tax Code provided that the PWD is not gainfully employed and is chiefly dependent upon the taxpayer. The additional exemption may be claimed for each qualified dependent up to a maximum of four (4). 

Interestingly, while this P25,000 additional exemption is also granted to those caring for senior citizens through the Expanded Senior Citizens Act (RA No. 9994), in Revenue Regulations No. 7-2010, the Bureau of Internal Revenue restricted the coverage to taxpayers with a qualified dependent child or children, as defined in the Tax Code. Although a senior citizen who is not gainfully employed and is living with and chiefly dependent upon his benefactor is considered a dependent, the benefactor is only entitled to claim the basic personal exemption, but not the additional tax exemption.

Under RA 10754, the Department of Social Welfare and Development, in consultation with the Department of Health, the Department of Finance, and the National Council on Disability Affairs, will promulgate the necessary rules and regulations for the effective implementation of the Act’s social welfare provisions. 

However, while this Act took effect last April, 15 days after its publication, no implementing rules and regulations (IRR) have been issued to date. Nonetheless, the failure of the concerned agencies to promulgate the said rules and regulations should not prevent concerned parties from implementing its provisions.

In the absence of an IRR, however, concerned taxpayers and establishments now face the difficulty of how to effectively implement the new law, such as the exemption from VAT extended to PWDs and the requirements for availing additional exemptions. Since the tax measures granted to PWDs were realigned with those granted to senior citizens, it may be presumed for now that the VAT exemptions would be similarly implemented. However, how about the classification of PWDs as qualified dependents? Can taxpayers actually claim additional tax exemption on qualified PWDs contrary to the case for senior citizens?

Until the guidelines are issued, taxpayers will have to contend with varied interpretations of the law and take their own position insofar as the implementation is concerned to avoid possible penalties for non-compliance. With an IRR, possible abuse of the privileges can be avoided, ambiguities in interpretation are dispelled and optimal benefits to the beneficiaries are ensured as envisioned by the law. This only highlights the urgent need for an IRR so as to streamline the implementation of the additional benefits. 

Source: Business World Online

The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

Nadine E. Chan is an assistant manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PwC network. 

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