Preferential Taxation

SENIOR CITIZENS LAW

Exemption from Income Tax

General Rule: Qualified senior citizens deriving income during the taxable year, whether from
compensation or otherwise, are required to file income tax returns.

Exceptions to the Rule:

a) If the income of senior citizen and he is a minimum wage earner (MWE), such senior citizen
is exempted from income tax subject to existing MWE rules.
b) If the aggregate amount of gross income during the taxable year does not exceed his
personal exemptions (basic and additional), such senior citizen is EXEMPTED from tax and
NOT required to file annual ITR.
Tax Incentives to Qualified Establishments
Kinds of Discounts on Qualified Goods and Services:
 Promotional Discount
 20% discount
 5% discount on water and electric consumption by senior citizens
 50% discount on electricity, water and telephone consumption by the Senior Citizen Center

Discounts Treatment

 ordinary and necessary expenses

 deductible from the gross income of the seller falling under the category of itemized
deductions
 can be only claim if the seller does not opt for optional standard deduction during the taxable
year

Conditions for Deduction

1) Only that portion of the gross sales exclusively used, consumed or enjoyed by the senior
citizen shall be eligible for the deductible sales discount.
2) The gross selling price and the sales discount must be indicated separately in the official
receipt or sales invoice issued by the establishment.
 3) Only the actual amount of the granted discount or a sales discount not less than the statutory
rate (20%, 5%, 50%, when applicable), whichever is higher, based on the gross selling price
can be deducted from the gross income, if applicable, for income tax purposes, and from the
gross sales or gross receipts of the business enterprise concerned, for VAT or OPT purposes.
4) The seller must record its sales inclusive of the granted discount.
5) The discount can only be allowed as a deduction from gross income for the same taxable year
the discount is granted.
6) The business establishment giving sales discount to qualified senior citizens is required to
keep a separate and accurate record of sales, whicy shall include the senior citizen's name, id,
gross sales or gross receipts, dates of transactions and invoice numbers for every sale to
senior citizens.
7) Only business establishments selling any of the qualified goods and services to senior citizens
where an actual discount was granted may claim the deduction.
8) The seller must not opt for OSD.

Additional Deduction due to Compensation paid to Senior Citizens

Private entities that will employ senior citizens as employees, shall be entitled to an additional
deduction from their gross income, equivalent to fifteen percent (15%) of the total amount paid as
salaries and wages to senior citizens, subject to the provision of Section 34 of the Tax Code and its
implementing rules and regulations.

Conditions for Additional Deduction

a) The employment shall continue for a period of at least six (6) months.
b) The annual income of the senior citizen does not exceed the latest poverty threshold as
determined by the National Statistical Coordination Board (NSCB) of the National Economic
and Development Authority (NEDA) for that year. With this, the senior citizen shall submit to
his employer a sworn certification that his annual taxable income does not exceed the
poverty level.

MAGNA CARTA FOR DISABLED PERSONS

Persons With Disability (PWD)

 Disabled persons are those suffering from restriction or 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.
  Having a long term physical, mental or sensory impairments that substantially limits their
psychological, physiological or anatomical function and effective participation in the society
in equap basis with others.
Qualified PWD:
 Individual with disability who can perform the essential functions of the employment position
such individual holds or desires.

Incentives for Employers

Private entities that employ disabled persons who meet the required skills or qualifications, either as
regular employee, apprentice or learner, shall be entitled to an additional deduction, from their gross
income, equivalent to 25 per cent of the total amount paid as salaries and wages to disabled persons.

Requirements:

1. Entities must present proof as certified by the Department of Labor and Employment that
disabled persons are under their employ.
2. That the disabled employee is accredited with the Department of Labor and Employment
and the Department of Health as to his disability, skills and qualifications.
Private entities that improve or modify their physical facilities in order to provide reasonable
accommodation for disabled persons shall also be entitled to an additional deduction from their net
taxable income, equivalent to 50 per cent of the direct costs of the improvements or modifications.
Note: Not applicable to improvements or modifications of facilities required under Batas Pambansa
Bilang 344.
SPECIAL ECONOMIC ZONE ACT
Coverage:
1) Policy and the Philippine Economic Zone Authority
2) Registration of Investments
3) Fiscal incentives to PEZA - registered economic zone enterprises
Declaration of Policy
It is the declared policy of the government to translate into practical realities the following State
policies and mandates in the 1987 Constitution, namely:
a) "The State recognizes the indispensible role of the private sector, encourages private
enterprise, and provides incentives to needed investments." (Sec. 20, Art II)
b) "The State shall promote the preferential use of Filipino labor, domestic materials and locally
produced goods and adopt measures that help make them competitive." (Sec. 12, Art XII)
Registration of Investments

Registration of Business Enterprises - Business enterprises within a designated ECOZONE shall

register with the peza to avail incentives and benefits provided by the PEZA law.

Developer/Operator, Domestic Market, Utilities, Facilities, Tourism or Service Enterprises

Qualifications:

Applications shall comply with the applicable nationality, control and / or ownership requirements of
the working capital thereof in accordance with the pertinent provisions of the Philippine Constitution,
Foreign Investments Act of 1991 and other existing laws and regulations.

Domestic Enterprise Qualifications:

Applications shall be limited to new or expanding business entities subject to the guidelines that shall
be promulgated by the Board in addition to the nationality requirements under existing laws and
regulations.

Incentives to Ecozone Enterprises

 New or expanding ECOZONE Developers / Operators, Export, Free Trade,Domestic Market,

Utilities, Facilities and Tourism Enterprises, except ECOZONEService Enterprises shall be
entitled to the fiscal incentives provided in Sections24 (5% Gross Income Taxation) and 42
(Incentive Scheme of ½ of the value oftraining expenses incurred in developing skilled or
unskilled labor or formanagerial or other management development programs incurred by
enterprisesdeductible from the national government's share of three percent (3%) of the Act.
 Additional Incentives to new or expanding ECOZONE Export and Free TradeEnterprises 1.
Exemption from Duties and Taxes on Merchandise 2. Exemptionfrom National and Local
Taxes and Licenses 3. Tax Credit for Import Substitution4. Exemption from Wharfage Dues,
Export Tax, Impost or Fee 5. AdditionalDeduction for Training Expenses 6. Incentives Under
Presidential Decree 66.
Incentives to Ecozone Developers/Operators
a) Exemption from National and Local Taxes and Licenses including but notlimited to gross
receipts tax, Value Added Tax, ad valorem and excisetaxes, franchise, common carrier or
value added taxes and otherpercentage taxes on public and service utilities and enterprises.
 In lieuthereof, the ECOZONE Developer / Operator Enterprise shall pay a fivepercent (5%)
final tax on gross income.
b) Additional Deduction of 1/2 of the value of training expenses incurred indeveloping skilled or
unskilled labor or for managerial or othermanagement development programs incurred by an
ECOZONEDeveloper / Operator which may be deducted from the 5% final tax duefrom the
ECOZONE Developer / Operator but not to exceed the nationalgovernments share of three
percent (3%).
Other Incentives Under the Code
1. Income Tax Holiday
2. Tax Credit on Domestic Capital Equipment
3. Importation of Breeding Stocks and Genetic Materials
4. Tax Credit on Domestic Breeding Stock and Genetic Materials
5. Additional Deduction for Labor Expense
6. Unrestricted Use of Consigned Equipment
Incentives to Domestic Market Enterprises
1. Exemption from national and local taxes in lieu thereof, payment ofa special tax rate of five
percent (5%) on gross income
2. Additional Deduction for Training Expenses
3. Other incentives available under the Code, as maybe determined and subject to the
conditions may be prescribed by the Board
Incentives to Facilities, Utilities and Tourism Enterprises
1. Exemption from national and local taxes in lieu thereof, payment ofa special tax rate of five
percent (5%) on gross income
2. Additional Deduction for Training Expenses
3. Incentives provided under R.A. 6957 as amended by R.A 7718 ( Build Operate and Transfer
Law)
4. Other incentives available under the Code as maybe determined by the Board

Fiscal Incentives Outside TEZs

Accommodation Establishments

1. Income Tax Holiday - non-extendible 6 years of substantial expansion

2. Exemption from taxes on Importation of Capital Investment and Equipment
3. Net Loss Carry Over - same with those inside
TEZ Availment of Tax Incentives

 Availing entities shall obtain a Certificate of Entitlement as a proof of incentive entitlement

from TIEZA on annual basis.
 TIEZA Certificate of Registration shall be attached to the ITR upon filing of the returns.
 The BIR shall disallow any claims of incentives in the absence of CE and TIEZA certificate of
Registration.

Other Important Considerations

1) Withholding agents
2) TEZs not treated as separate custome territories
3) Maintenance of Separate Books of Accounts of each tieza registered activities
4) Compliance with R.A No. 10708
5) No double availment of incentive schemes
6) Incentive Scheme is effect for a period of 10 years from R.A 9593 effectivity - Tourism Act of
2009

BARANGAY MICRO BUSINESS ENTERPRISE ACT

Coverage:

1. Registration of BMBEs
2. Fiscal Incentives to BMBEs
Who can register?
 Sole Proprietorship
 Partnership
 Corporation
 Cooperative Association

What are BMBEs?

 engaged in the production, processing or manufacturing of products or commodities,

including agro-processing, trading and services, whose total assets including those arising
from loans but exclusive of the land on which the particular business entity's office, plant and
equipment are situated, shall not be more than Three Million Pesos (P3,000,000.00)
Considerations:
  majority of its employees are residents of the municipality of principal office location
 principal activity consist in the application of a skill peculiar to the locality
 business operations confined to the LGU of principal office location or within the territorial
jurisdiction of the municipality

Nature and Scope

(a) its principal activity be primarily for livelihood, or determined by SMED or DTI as priority are for
development or government assistance

(b) not a branch, subsidiary or division of a large-scale enterprise,

(c) its policies and business modus operandi are not determined by a large enterprise

Certificate of Authority

 Issued a Certificate of Authority (COA) by the LGU’s City Treasurer of principal office location
within 15 days from filing complete application requirements/papers, and valid for 2 years
and renewable for not more than 2 years in any instance.
Fiscal Incentives
Exemption from Income Tax – A duly BMBE is exempt from income tax with respect to its income
from operations and as such, income payments to it is not subject to withholding taxes.
Some of the Limitations of Incentives
 Interest
 Royalties
 Prizes and other winnings
 Cash and property dividends
 Capital gains from the sale of stocks not traded through stock exchange
 Capital gains from the sale or disposition of properties

Availment of Tax Incentives

Upon the application of registration with the BIR where the principal office of the business is located,
application shall be supported by the following documents:
 1. Copy of the BMBE's COA duly authenticated by the City or Municipal Treasurer
2. Latest Audited FS or Account Information Form or its equivalent containing data from audited
fs
3. Sworn statement of assets & liabilities in business or those to be used with acquisition details
and support such as invoices, receipts or contracts
4. Certified list of branches, sales outlets, places of production, warehouses, etc. owned and
operated by the BMBE including their respective addresses
5. Certified list of affiliates including their addresses, line of businesses and responsible officers
thereof

Exemptions from Gross Receipt Tax

 Interest, commissions and discounts from the loans granted by LBP, DBP, PCFC, and SBGFC to
duly registered BMBE
 Loans granted by SSS and GSIS to their respective member-employees for the purpose of
establishing BMBEs
Disqualifications from GRT Exemption
In case the amount of loan extended by the above-mentioned credit institutions to a BMBE borrower
resulted to the BMBE's total asset exceeding the P3 million asset threshold, the said credit
institution(s) is/are disqualified from GRT exemption.