Impact of the expanded senior citizens law
Impact of the expanded senior citizens law by: Pamela P. Palad
The Bureau of Internal
Revenue (BIR) has just issued the much-anticipated Revenue Regulations
No.(RR) 7-2010 implementing the tax
privileges granted under Republic Act (RA) No. 9994 or the “Expanded Senior
Citizens Act of 2010.”
The regulations cover not only the tax privileges granted to
senior citizens, but also the tax implications on the VAT-registered sellers,
benefactors and other private entities who engage senior citizens as their employees.
The public has been made aware of the benefits given to senior
citizens under RA 9994. Particularly, they
are entitled to: (a) 20% discount and exemption from VAT on their purchase of
specified goods and services; (b) P500 monthly social pension, for indigent
senior citizens; (c) death benefit assistance; (d) 5% discount on utilities; and
(e) income tax exemption for minimum wage earners or for senior citizens whose
annual gross income do not exceed their personal exemptions.
Looking now at the other side of the picture, what would be the
impact of RA 9994 and its implementing rules and regulations to all
establishments supplying any of the discounted goods and services to senior
Significantly, RR 7-2010 discusses, among others, the
invoicing procedures, reportorial requirements and the system for claiming the
cost of the discount as tax deduction for compliance by VAT-registered sellers.
According to Section 7 of RR 7-2010, the cost of the
discount incurred by these establishments shall only be allowed as a deduction
from gross income for the same taxable year that the discount is granted, provided
that the amount of sales reported for tax purposes is the undiscounted selling
price and not the amount of sales net of the discount. In effect, the discounts granted shall be
treated as ordinary and necessary expenses deductible from the gross income of
the seller falling under the category of itemized deductions. Since it is not covered by any of the
specific line items in the list of itemized deductions, it may have to be
included under the classification of “miscellaneous” or “others.”
The treatment of the discount as a deductible ordinary and
necessary expense may not matter for purposes of computing the liability of the
establishment for the regular corporate income tax.
Whether it is treated as a discount or an expense, the
income tax due will not be affected.
However, the prescribed treatment will definitely matter when computing
the 2% minimum corporate income tax (MCIT).
Since the MCIT is based on gross income, the discount will still form
part of the MCIT base.
Furthermore, the discount can only be claimed as a deduction
if the seller opts to avail of the itemized deductions. The establishment granting the discount will
not benefit if it opts for the Optional Standard Deduction during the taxable
a safety net, it was also provided that only business establishments selling
any of the qualified goods and services to senior citizens where an actual
discount was granted may claim the deduction, and only that portion of the
gross sales exclusively used, consumed or enjoyed by the senior citizen shall
be eligible for the deductible sales discount.
Thus, the seller is required to keep a separate and accurate record of
sales, which shall include the name of the senior citizen, OSCA ID, gross sales/receipts, sales discount
granted, dates of transactions, and invoice number for every sale transaction
to senior citizen.
in issuing the official receipt or sales invoice, the regulations recognize the
senior citizen discount as a discount from selling price. Hence, it requires that the gross selling
price and the sales discount must be separately indicated, and all exempt sales
must be properly segregated from the taxable sales for every transaction.
the establishment is offering a promo for a higher discount rate, the actual
amount of the discount granted -- either the senior citizens discount or the
promotional sales discount -- whichever is higher, may be availed of. It is probably safe to assume that if the
promotional discount is granted based on the gross selling price, then this
will be allowed as a deduction from gross sales and shall not be limited to
being deducted from the gross income, for income tax purposes.
VAT and other percentage taxes, the discount shall be allowed as deduction from
gross sales or gross receipts of the concerned business enterprise. This rule
will potentially result in discrepancies in the amount of sales reported in the
financial statement and income tax declaration versus the amount reported in the
VAT return. Judging from the efficiency
of the BIR RELIEF system, the situation will trigger the issuance of letter
notices for establishments granting senior citizen discounts. The discrepancy may also be raised in a tax
audit investigation if proper computation is not made.
since sales of qualified goods and services to senior citizens are exempt from
VAT, the input tax attributable to the exempt sale shall not be allowed as an
input tax credit and must be closed to cost or expense account by the seller. To comply with this requirement, the
establishment has to determine the amount of input VAT attributable to sales to
senior citizens using the ratio of sales to senior citizens to total sales as
the allocation factor. For
establishments selling other goods or services not covered by the discount
privileges, the computation of the allocation factor will not be as simple.
The tax treatment for local business tax (LBT) was not
tackled as the RR covers only national taxes.
However, we take the position that the discounts granted to senior
citizens, which are determinable at the time of sale, shall be excluded in
computing for the total gross sales or receipts as the tax base for LBT.
All business establishments supplying any of the qualified
goods and services to senior citizens should carefully take note of the proper
tax treatment and compliance requirements provided under the implementing
rules. Ultimately, the objective is to
give our elders the maximum benefits provided under the law. It is hoped, however, that this is
accomplished without putting any unjust burden on the selling establishments
who cater to their needs.
This article is not intended to be a substitute for professional advice. For comments and inquiries, you may e-mail the author at Pamela.Palad@ph.gt.com. For other tax concerns, please check out our other tax services.