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Implementation issues concerning RA 9994

Implementation issues concerning the Expanded Senior Citizens Act by Conrad Cereno

A couple of weeks ago, news clips featured some of our elders rejoicing outside the Malacañang Palace. 

No, they were not reenacting the “Cry of Pugadlawin”.  Neither did they win the lotto jackpot. 

They were celebrating the signing of President Gloria Macapagal-Arroyo of Republic Act (RA) No. 9994, otherwise known as the “Expanded Senior Citizens Act of 2010”. 

Of course, we are all aware that senior citizens, or those resident citizens of the Philippines at least 60 years old, are entitled to a 20 percent discount on their purchases of basic essential goods and services such as medicines, transportation, medical and dental fees, services in hotels and restaurants, etc.    

As introduced in RA 9994, purchases covered by the discount are considered exempt from value-added tax (VAT).  Previously, senior citizens claim that they are effectively getting only an 8 percent discount because of the 12 percent VAT imposed on their purchases. With the passage of the new law, they can now enjoy the full impact of the 20 percent discount.  The establishments selling those goods and services, on the other hand, may claim the discounts as deduction from their gross income.   

However, finance people claim that the additional VAT exemption could translate to at least P1.6B annual revenue loss for the government.

This loss, however, can be better recouped through efficient tax collection.  The need to support the most vulnerable members of our society in this challenging stage of their lives far more outweighs the projected revenue loss of the government. 

While our beloved “young once” felt triumphantly jubilant with the passage of this new law, doubts loom whether this feeling is equally shared by the selling establishments.    

For one, this development necessitates an adjustment in the computerized accounting system (CAS) particularly to those using cash registers or point of sale (POS) machines like fast food chains.  As we know, the 20 percent discount is applied only on the total bill, divided by the number of customers, for those who come in groups.  These POS machines may be designed or programmed only to take up discounts, but may have to be calibrated to exclude the sales allocated for the exclusive use and enjoyment of the senior citizen from the tax base subject to VAT.       

With regard to those using manual invoices/official receipts, compliance for BIR purposes entails additional time to separately indicate the gross sales/receipts pertaining to senior citizen as VAT-exempt transaction.  Furthermore, these establishments must keep a separate book to monitor their VAT-exempt sales.

What could be controversial in this new law is the effect of the input VAT incurred by the seller on the goods or services sold to senior citizens.  As a rule, input VAT directly attributable or allocated to VAT-exempt gross sales/receipts forms part of the cost of the goods or services.  This is deductible from the gross income to determine the taxable income.  Thus, instead of enjoying the full benefit of the input VAT as creditable against its output VAT, the seller stands to realize only 30 percent (income tax rate) of the input VAT it incurred in bringing the goods or services in its salable condition.  This, in effect, creates undue burden on the part of the sellers since they will have to shoulder the 70 percent of the input VAT that they may not be able to fully utilize or credit against their output tax liability. 

The scenario would have been different if the law declared the transaction as VAT zero-rated instead of VAT-exempt sale.  Input VAT for zero-rated sales may be refunded or applied against the gross sales/receipts subject to output VAT.   This would make the benefit more VAT neutral to the sellers as it would allow them to still credit the full input VAT against their output VAT liability.

At any rate, with the Expanded Senior Citizens Act of 2010 in place, the next challenge is for the different government agencies to come up with their respective implementing rules and regulations (IRR) to give life to the law.  For the BIR, the IRR shall sufficiently cover the compliance requirements to prevent any issues that may be raised by the taxpayers in the course of its implementation.  In crafting the IRR, it must always be kept in mind that the objective of the law is to maximize the potential benefit to our elders and to provide them the much needed means to weather the uncertainties of old age without adversely affecting the selling establishments.

This article is not intended to be a substitute for professional advice.  For comments and inquiries, you may e-mail the author at  For other tax concerns, please check out our other tax services.