PREFERENTIAL TAXATION

TOPIC 1

SENIOR CITIZENS LAW

Section 1

Declaration of Policies and Objectives

As provided in the Constitution of the Republic of the Philippines, it is the declared policy of the
State to promote a just and dynamic social order that will ensure the prosperity and independence
of the nation and free the people from poverty through policies that provide adequate social
services, promote full employment, a rising standard of living and an improved quality of life.

Article XIII, Section 11 of the Constitution provides that the Sate shall adopt an integrated and
comprehensive approach to health development which shall endeavor to make essential goods,
health and other social services available to all the people at affordable cost. There shall be
priority for the needs of the underprivileged, sick, elderly, disabled, women and children. Article
XV, Section 4 of the Constitution Further declares that it is the duty of the family to take care of
its elderly members while the State may design programs of social security for them.

Who are considered senior citizens in the Philippines?

 If you are a Filipino who is sixty (60) years old and above and a resident of the
Philippines, you are a senior citizen.
 If you have “dual citizenship” and have been residing in the Philippines for at least six (6)
months, you are also considered a senior citizen and are entitled to all privileges provided
under the law.
 Resident Citizen: Filipino Citizen with permanent/ legal residence in the Philippines, and
shall include one, who, having migrated to a foreign country, has returned to the
Philippines with a definite intention to reside therein, and whose immigrant visa has been
surrendered to the foreign government.

Income Tax for Senior Citizens

Generally, qualified Senior Citizens deriving returnable income during the taxable year, whether
from compensation or otherwise, are required to file their income tax returns and pay the tax as
they file the return.
However, if the returnable income of a Senior Citizen is in the nature of compensation income
but he qualifies as a minimum wage earner under RA No. 9504, he shall be exempt from income
tax on the said compensation income subject to the rules provided under Revenue Regulations
No applicable to minimum wage earners.

Likewise, if the aggregate amount of gross income earned by the Senior Citizen during the
taxable year does not exceed the amount of his personal exemptions (basic and additional), he
shall be exempt from income tax and shall not be required to file an income tax return.

Hence, he can still be liable for other taxes such as:

1. The 20% final withholding tax on interest income from any currency bank deposit
2. The 7.5% final withholding tax on interest income from a depository bank under the
expanded foreign currency deposit system (Sec.24(B)(1), Tax Code.
3. If the Senior Citizen will pre-terminate his 5-year long-term deposit or investment
 Four years to less than five years - 5%
 Three years to less than four years - 12%; and
 Less than three years -20%
4. The 10% final withholding tax - On cash and/or property dividends actually or
constructively received from a domestic corporation or from a joint stock company,
insurance or mutual fund company and a regional operating headquarters of a
multinational company; or On the share of an individual in the distributable net income
after tax of a partnership (except a general professional partnership) of which he is a
partner; or On the share of an individual in the net income after tax of an association, a
joint account, or a joint venture or consortium taxable as a corporation of which he is a
member or a co-venturer (Sec. 34(B)(2), Tax Code.)
5. Capital gains tax from sales of shares of stock not traded in the stock exchange (Sec.
24(C), Tax Code); and
6. The 10% final withholding tax on presumed capital gains from sale of real property,
classified as capital asset, except capital gains presumed to have been realized from the
sale or disposition of principal residence (Sec.24(D), Tax Code.)

Benefits and Privileges of Senior Citizen

20% Vat discount and VAT exempt

 the grant of twenty percent (20%) discount and exemption from the value -added tax
(VAT), if applicable, on the sale of the following goods and services from all
establishments, for the exclusive use and enjoyment or availment of the senior citizen.
 o transportation privileges,
o medicine and drug purchase
o Professional fees of attending physicians
o Medical and dental services
o Utilization of hotels

Tax Exemption

 exemption from the payment of individual income taxes of senior citizens who are
considered to be minimum wage earners in accordance with Republic Act No. 9504;

5% discount in utility

 the grant of a minimum of five percent (5%) discount relative to the monthly utilization
of water and electricity supplied by the public utilities: Provided, That the individual
meters for the

Training fee exemption

 exemption from training fees for socioeconomic programs;

Other Free

 free medical and dental services, diagnostic and laboratory fees such as, but not limited
to, x-rays, computerized tomography scans and blood tests, in all government facilities,
subject to the guidelines to be issued by the DOH in coordination with the PhilHealth;
 educational assistance to senior citizens to pursue post-secondary, tertiary, post tertiary,
vocational and technical education, as well as short-term courses for retooling in both
public and private schools through provision of scholarships, grants, financial aids,
subsides and other incentives to qualified senior citizens, including support for books,
learning materials, and uniform allowances, to the extent feasible: Provided, that senior
citizens shall meet minimum admission requirements;
 Death benefit assistance of a minimum of Two Thousand pesos (2000) shall be given to
the nearest surviving relative of a deceased senior citizen.

GOVERNMENT ASSISTANCE

The senior citizen shall be treated as dependents, individual taxpayers caring for them, be
they relatives or not shall be accorded the privileges granted by the Code insofar as having
dependents are concerned

Employment
  "Senior citizens who have the capacity and desire to work, or be re-employed, shall be
provided information and matching services to enable them to be productive members of
society. Terms of employment shall conform with the provisions of the Labor Code, as
amended, and other laws, rules and regulations.

Social Pension

 Indigent senior citizens shall be entitled to a monthly stipend amounting to P500 to

augment daily subsistence and other medical needs.

Mandatory PhilHealth coverage

 All senior citizens are covered by the national health insurance program of PhilHealth.

Social safety nets

 The social safety assistance shall include food, medicines, and financial assistance for
house repair to cushion effects of economic, disaster and calamity shocks.

Death benefit assistance

 Assistance of a minimum of P2,000 shall be given to the nearest surviving relative who
took care of the deceased senior citizen.

MAGNA CARTA FOR DISABLED PERSON

This Act shall cover all disabled persons and, to the extent herein provided, departments, offices
and agencies of the National Government or nongovernment organizations involved in the
attainment of the objectives of this Act.

Declaration of Policy

The grant of the rights and privileges for disabled persons shall be guided by the following
principles:

 Disabled persons have the same rights as other people to take their proper place in
society. They should be able to live freely and as independently as possible. This must be
the concern of everyone — the family, community and all government and
nongovernment organizations. Disabled persons' rights must never be perceived as
welfare services by the Government.
 The rehabilitation of the disabled persons shall be the concern of the Government in
order to foster their capacity to attain a more meaningful, productive and satisfying life.
To reach out to a greater number of disabled persons, the rehabilitation services and
 benefits shall be expanded beyond the traditional urban-based centers to community-
based programs, that will ensure full participation of different sectors as supported by
national and local government agencies.
 The State also recognizes the role of the private sector in promoting the welfare of
disabled persons and shall encourage partnership in programs that address their needs and
concerns.
 To facilitate integration of disabled persons into the mainstream of society, the State
shall advocate for and encourage respect for disabled persons. The State shall exert all
efforts to remove all social, cultural, economic, environmental and attitudinal barriers that
are prejudicial to disabled persons.

Definition of terms

For purposes of this Act, these terms are defined as follows:

(a) 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.

(b) Impairment is any loss, diminution or aberration of psychological, physiological, or

anatomical structure or function.

(c) Disability shall mean (1) a physical or mental impairment that substantially limits one or
more psychological, physiological or anatomical function of an individual or activities of such
individual;

D.) Handicap refers to a disadvantage for a given individual, resulting from an impairment or a
disability, that limits or prevents the function or activity, that is considered normal given the age
and sex of the individual;

(e) Rehabilitation is an integrated approach to physical, social, cultural, spiritual, educational

and vocational measures that create conditions for the individual to attain the highest possible
level of functional ability

BENEFITS AND PRIVILEGES OF PERSONS WITH DISABILITY

Under Philippine Law, every Person with Disability is guaranteed rights to access and
opportunities in pursuit of equality. Here are the rights of the PWD:
 (a) 1 Employment
a. Every PWD shall enjoy equal opportunities in the workplace, and maintain the right
to pursue any employment that they are qualified for.

(b) 2 Education
PWDs from all parts of the country shall have the same access to quality education and
educational assistance. The government also pledges to establish, maintain, and support a
complete special education system in all schools across the nation.

(c) 3 Health
The Department of Health has pledged to establish and pursue a nationwide health
program for the prevention, recognition, early diagnosis, and early rehabilitation of
disability.

(d) 4 Auxiliary Social Services

The Philippine government shall ensure that all PWDs will have access to auxiliary social
services like social enhancement, day care and family care services that will help restore
their function and participation in community affairs.

(e) 6 Accessibility
a. All public and private spaces, including modes of transportation, shall follow and
maintain accessibility provisions to ensure a barrier-free environment for all PWDs.

(f) 7 Political and Civil Rights

a. The State ensures that all PWDsshall maintain the right to vote and assemble.

TAX INCENTIVES
Tax Incentives for those Caring for and Living with Persons with Disabilities
Section 14. Tax Incentives for those Caring for and Living with Persons with Disabilities –
Those caring for and living with a person with disability, up to the fourth degree of affinity or
consanguinity, shall be granted tax incentives in accordance with the provisions of the National
Internal Revenue Code, as amended. For purposes of granting the incentives, persons with
disability shall be treated as dependents under Section 35(b) of the National Internal Revenue
Code of 1997, as amended, and as such, individual taxpayers providing care for them shall be
accorded the privileges granted by the Code insofar as having dependents under the same section
is concerned.
Compute Senior Citizen/PWD discount and VAT Exemption
Step 1: The VAT shall be initially deducted from the retail price of the item to obtain the Net
Retail Price.

Selling Price/VAT Rate (12%) = Net Retail Price

Step 2: The 20% discount shall then be deducted from the VAT exempt sale to obtain the Senior
Citizen/PWD Price

Net Retail Price * 20% Discount = SC/PWD Price

SPECIAL ECONOMIC ZONE "The Special Economic Zone Act of 1995."

What Is a Special Economic Zone (SEZ)?

A special economic zone (SEZ) is an area in a country that is subject to different economic
regulations than other regions within the same country.
Areas of highly developed or which have the potential to be developed into agro-industrial,
tourist, recreational, commercial, banking, investment and financial centers whose meters and
bounds are fixed or delimited by Presidential Proclamation.

Classification of Ecozones in the Philippines

 Industrial Estates in the Philippines- refers to a tract of land subdivided and developed
according to a comprehensive plan under a unified continuous management and with
provisions for basic infrastructure and utilities, with or without pre-built standard factory
buildings and community facilities for the use of a community if industries.

 Export processing Zones in the Philippines- refers to a specialized industrial estate

located physically and/or administratively outside the customs territory and
predominantly oriented to export production. Enterprises located in export processing
zones allowed to import capital equipment and raw materials free from duties, taxes and
other import restrictions.

 Free trade zones in the Philippines- refers to an isolated policed area adjacent to a port
of entry (such as a seaport) and/or airport where imported goods may be unloaded for
immediate transshipment or stored, repacked, sorted, mixed or otherwise manipulated.
 However, movement of these imported goods from free-trade area to a non-free trade
area in the territory shall be subject to customs and internal revenue rules and regulations.

 Tourist/Recreational Centers in the Philippines- refers to an area within the

ECOZONE where tourist accommodation facilities such as hotels, apartelles, tourist inns,
pension houses, resorts, sports and/or recreational facilities are provided to render
tourism services for both local and foreign tourists, travelers and investors in accordance
with guidelines issued by PEZA.
Enterprises within the zone are granted preferential tax treatment and immigration laws are more
lenient.

Incentives to Ecozones Enterprises

New or expanding ECOZONE Developers/Operators, Export, Free Trade, Domestic Market,
Utilities, Facilities and Tourism Enterprises, except ECOZONE Service Enterprises shall be
entitled to the fiscal incentives provided in Section 24 (5% Gross Income Taxation) 42 (Incentive
Scheme of ½ of the value of training expenses incurred in developing skilled or unskilled labor
or for managerial or other management development programs incurred by enterprises deductible
from national government’s share of three percent (3%) of the Act.

Incentives to Ecozone Developer/Operators

a) Exemption from National and Local Taxes and Licenses including but not limited to
gross receipts tax, Value Added Tax, ad valorem and excise taxes, franchise, common
carrier or value added taxes and other percentage taxes on public and service utilities and
enterprises. In lieu thereof, the ECOZONE Developer/Operator Enterprise shall pay a
five percent (5%) final tax on gross income.
b) Additional Deduction of ½ of the value of training expenses incurred in developing
skilled or unskilled labor or for managerial or other management development programs
incurred by an DCOZONE Developer/Operator which may be deducted from the 5%
final tax due from ECOZONE Developer/Operator but not to exceed the national
governments share of three percent (3%).

Additional Incentives to new or expanding ECOZONE Export Free Trade Enterprises:

1. Exemption from Duties and Taxes on Merchandise
2. Exemption from National and Local Taxes and Licenses
3. Tax Credit for Import Substitution
 4. Exemption from Wharfage Dues, Export Tax, Impost or Fee
5. Additional Deduction for Training Expenses
6. Incentives Under Presidential Decree 66

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

Non-Fiscal Incentive
Immigration – Any investor within the ECOZONE whose initial investment shall not be less
than One Hundred Fifty Thousand Dollars ($150,000.00), his/her spouse and dependent children
under twenty-one (21) years of age shall be granted permanent resident status within the
ECOZONE. They shall have freedom of ingress and egress to and from the ECOZONE without
any need of special authorization from the Bureau of Immigration.
ECOZONE Enterprises may employ Foreign Nationals in executive, supervisory, technical and
advisory positions. Executive positions shall pertain only to the president, vice-president,
treasurer and general manager, or their equivalents
Percentage of Foreign Nationals in supervisory, technical or advisory positions shall not at any
time exceed five percent (5%) of its workforce unless expressly authorized by the Secretary of
Labor and Employment: Provided, That foreign nationals may be employed in supervisory,
technical advisory positions only if it is certified by the DOLE that no Filipino within
ECOZONE possesses the technical skills required therefor.

“Customs Territory” shall mean the national territory of the Philippines outside of the
proclaimed boundaries of the ECOZONES except those areas specifically declared by other laws
and/or presidential proclamations to have the status of special economic zones and / or free ports.
“Negative List” shall refer to the list of industries drawn up and regularly updated by the PEZA
under which ECOZONE Enterprises engaged in any industry listed therein shall not be allowed
to sell their products or any portion thereof in the custom territory.
“Certificate of Registration” shall mean the certificate issued by the PEZA to an ECOZONE
Enterprise upon its registration.
“Registration Agreement” shall refer to the final agreement executed by the PEZA and the
ECOZONE Enterprise setting forth the terms and conditions for the latter's operation of business
or engaged of economic activity within the ECOZONE.
“Date of Registration” shall refer to the date appearing in the certificate of registration.
“Start of Commercial Operations” for purposes of the income tax holiday shall be the date
specified in the Registration Agreement or the date when the particular ECOZONE export
enterprise actually begins production of the registered product for commercial purposes,
whichever comes first, irrespective of phases or modules or schedule of development.
“Gross Income” for purposes of computing the special tax due under Section 24 of the Act
refers to gross sales or gross revenues derived from business activity within the ECOZONE, net
of sales discounts, sales return and allowances and minus costs of sales or direct costs but before
any deduction is made for administrative expenses or incidental losses during a given taxable
period. The allowable deductions from “gross income” are specifically enumerated under Section
2, Rule XX of these Rules

BARANGAY MICRO BUSINESS ENTERPRISE (BMBE) ACT

What is BMBE?
Republic Act No. 9178. An act to promote the establishment of Barangay Micro Business
Enterprises (BMBEs), providing incentives and benefits, therefore, and for other purposes. A
micro business or enterprise is defined as any business activity or enterprise engaged in industry,
agribusiness and or services, whether single proprietorship, cooperative, partnership or
corporation whose total assets, inclusive of those arising from loans but exclusive of the land on
which the particular business entity’s office, plant and equipment are situated, must have value
of not more than 3 million Pesos.

Definition of terms:
a. “Barangay Micro Business Enterprise,” hereinafter referred to as BMBE, refers to
any business entity or enterprise 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). The above
definition shall be subject to review and upward adjustment by the SMED Council,
as mandated under Republic Act No. 6977, as amended by Republic Act No. 8289.
b. “Certificate of Authority” is the certificate issued granting the authority to the
registered BMBE to operate and be entitled to the benefits and privileges accorded
thereto.
c. “Assets” refers to all kinds of properties, real or personal, owned by the BMBE and
used for the conduct of its business as defined by the SMED Council: Provided, That
for the purpose of exemption from taxes and fees under the Act, this term shall mean
all kinds of properties, real or personal, owned and/or used by the BMBE for the
conduct of its business as defined by the SMED Council.
d. “Registration” refers to the inclusion of BMBE in the BMBE Registry of a city or
municipality.
e. “Financing” refers to all borrowings of the BMBE from all sources after
registration.
Registration Fees. The Office of the Treasurer of each city or municipality shall register the
BMBEs and issue a Certificate of Authority to enable the BMBE to avail of the benefits under
the Act.
Who are Eligible to Register? Any person, natural or juridical, or cooperative, or association,
having the qualifications as defined in Section 3(a) hereof may apply for registration as BMBE.

Basic requirements for new applicants and for BMBEs applying for renewal of
registration:
a. Duly filled out application form (BMBE Form 01) in triplicate, signed by the owner or
manager of the entity applying for registration
b. Three passport size ID pictures

Additional requirements for new applicants:

A. For those with assets worth three hundred thousand pesos (P300, 000) and less –
1. Registration as a business entity or enterprise from the appropriate government
agency (e.g., Securities and Exchange Commission (SEC) registration in the case of
corporation, partnership or association; Cooperative Development Authority (CDA)
 registration in the case of cooperative; Department of Trade and Industry (DTI)
business name registration in the case of sole proprietorship)
2. Mayor’s Permit or City/ Municipal Business Permit
B. For those with assets worth more than three hundred thousand pesos (P300, 000) up to
three million pesos (P3,000,000.00)
1. Registration as a business entity as explained above in item A.1
2. Taxpayer Identification Number (TIN)
3. Certificate of Registration from the Bureau of Internal Revenue (BIR)
4. Mayor’s Permit or City/Municipal Business Permit
5. Sworn affidavit executed by the sole proprietor or the President of the enterprise,
as the case may be, that the enterprise is barangay-based and micro-business in
nature and scope
6. Sworn Statement of Assets and Liabilities supported by pertinent documents
7. Pictures of the place of business and its assets, other than cash, receivables and
intangibles
8. Copy of Loan Contract/s, if any, and duly-notarized Certification of Amortization
Payments on the Loan
9. Income Tax Return (ITR).

Additional requirements for the renewal of BMBE registration:

C. For those with assets worth three hundred thousand pesos (P300,000) and less –
1. Documents previously listed in item A.1 for new applicants with assets worth three
hundred thousand pesos and less
2. Annual Information Return (for the year immediately preceding the renewal of
registration) duly filed with the BIR, together with its attachments
D. For those with assets worth more than three hundred thousand pesos (P300,000) up to
three million pesos (P3,000,000.00) –
1. Documents previously mentioned in item B.1-8
2. Annual Information Return (for the year immediately preceding the renewal of
registration) duly filed with the BIR, together with its attachments

How much will it cost to register?

According to Section 4 of the Act, registration and issuance of the Certificate of Authority of the
LGU is free of charge and shall be done promptly. However, to cover the administrative costs of
registering and monitoring the BMBEs, the LGUs are allowed to charge a fee not exceeding P1,
000.00.

How to avail for the Income Tax Exemption?

To avail with the income tax exemption, the BMBE must register with the BIR Revenue District
Office (RDO) where the principal office or place of business is located and submit the following
documents:
a. Copy of the BMBE’s Certificate of Authority
b. Sworn Statement of Assets of the BMBE and/or its affiliates, supported by
pertinent documents
c. Certified list of branches, sales outlets, places of production, warehouses
and storage facilities
d. Certified list of affiliates
e. Latest audited Financial Statement or Account Information Form or its
equivalent

What document should be filed with BIR by an income tax exempt BMBE?
Instead of an income tax return, an income tax exempt BMBE is required to submit an Annual
Information Return. This is filed on or before the 15th day of the 4th month after the close of the
taxable year with an Account Information Form, which contains data from its financial statement
and Sworn Statement of Assets Owned and/or Used.
Transfer of Ownership. The BMBE shall report to the city or municipality of any change in the
status of its ownership structure, and shall surrender the original copy of the BMBE Certificate
of Authority for notation of the transfer.

INCENTIVES AND BENEFITS

 Exemption from Taxes and Fees. All BMBEs shall be exempt from income tax for
income arising from the operations of the enterprise. The LGUs are encouraged either to
reduce the amount of local taxes, fees and charges imposed or to exempt the BMBEs
from local taxes, fees and charges.

 Exemption from the Coverage of the Minimum Wage Law. The BMBEs shall be
exempt from the coverage of the Minimum Wage Law: Provided, that all employees
covered under the Act shall be entitled to the same benefits given to any regular
employee such as social security and healthcare benefits.
  Credit Delivery. Upon the approval of the Act, the Land Bank of the Philippines (LBP),
the Development Bank of the Philippines (DBP), the Small Business Guarantee and
Finance Corporation (SBGFC), and the People’s Credit and Finance Corporation (PCFC)
shall set up a special credit window that will service the financing needs of BMBEs
registered under the Act consistent with the Bangko Sentral ng Pilipinas (BSP) policies,
rules and regulations.

 Technology Transfer, Production and Management Training, and Marketing

Assistance. A BMBE Development Fund shall be set up with an endowment of Three
Hundred Million Pesos (P300, 000,000.00) from the Philippine Amusement and Gaming
Corporation (PAGCOR) and shall be administered by the SMED Council.

 Trade and Investment Promotion. The data gathered from business registration shall be
made accessible to and shall be utilized by private sector organizations and non-
government organizations for purposes of business matching, trade and investment
promotion.

Is the Income Tax Exemption privilege of a BMBE irrevocable?

No. The income tax exemption privilege of a BMBE may be revoked for any of the following
reasons:
a. Transfer of place of business;
b. Value of its total assets exceeds P3M;
c. Voluntary surrender of the Certificate of Authority;
d. Death of the registered individual owner of the BMBE; violation or noncompliance
with the provisions of R.A. 9178;
e. Merger or consolidation with an entity which is not eligible to be a BMBE;
f. Sale or transfer of the BMBE, if it is a sole proprietorship without prejudice to the
transferee applying for registration;
g. Submission of fake or falsified documents;
h. Retirement from business, or cessation/suspension of operations for one year; and
i. Making false or omitting required declarations or statements.