Under RA No. 9442, disable persons shall be entitled to the following:

a. 20% discount on services in hotels and similar lodging establishments; restaurants and recreation centers;
b. 20% discount on admission fees charged by theaters, cinema houses, concert halls and other similar places;
c. 20% discount on purchase of medicines in all drugstores;
d. 20% discount on medical and dental services including diagnostic and laboratory fees, and professional fees attending doctors in all private hospitals and medical facilities;
e. 20% discount on fare for domestic air and sea travel;
f. 20% discount on public railways, skyways and bus fare for the exclusive use and enjoyment of persons with disability;
g. educational assistance upon qualification
h. Such other special discounts in special programs on purchases of basic commodities in accordance with established guidelines.

For tax purposes, persons with disability with valid identification (issued by the barangay captain of residence, passport, and transportation discount card issued by NCWPD or National Council for the Welfare of Disabled Persons) may be claimed as a qualified dependent for additional personal exemption of P25,000. Seller establishments are allowed to claim the 20% discount as an allowable deduction from their gross income for income tax purposes. Further, individuals or nongovernmental institutions establishing homes, residential communities or retirement villages solely to suit the needs and requirements of persons with disability shall be accorded the following:

a. Realty tax holiday for the first five years of operation; and
b. Priority in the building and/or maintenance of provincial or municipal roads leading to the aforesaid home residential community or retirement village.

Personally, the 20% discount is quite similar to that of the senior citizens discount. For the least, the law would encourage respect to persons with disability and make them feel how important they are in the community, despite, their disabilities. Let us gave them respect and help them at all times.

Suggested readings:
a. Revenue Regulations No. 1-2009;

Compared to the normal tax rate of 5-32% bracket 5-32%, if a resident alien or non-resident alien engaged in trade or business, or 25%, if a non-resident alien not engaged in trade or business, the 15% rate is a good break because of a material rate gap on rates of income tax on compensation of approximately 17% (32%-15%), and 10% (25%-15%), respectively. Thus, the BIR saw the need to clarify the bounds of the term “Managerial and Technical Positions” to avoid abuse and misapplication of the above rule to minimize taxes, if not escape or evade.

Under the Labor Code, employment of non-resident aliens commonly referred to as “expatriate employees”, is limited to positions which are managerial, confidential, or highly technical in nature, or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired. To be considered managerial employee, it must possess authority to act in the interest of its employer requiring the use of independent judgment and not merely routinary or clerical in nature. The case of Villuga vs. NLRC, 225 SCRA 537 provides the following elements to be considered managerial employee:

a. primary duty consist of performance o work directly related to management policies;
b. customarily and regularly exercise discretion and independent judgment;
c. regularly and directly assist in the management of the establishment;
d. does not devote 20% of his time to work other than those prescribed above.

The employees are not managerial employees if they only execute approved and established policies, leaving little or no discretion at all whether to implement said policies or not. On the other hand, RMC did not elaborate very well on “technical position” other than saying that it is limited to positions which are highly technical in nature or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired.

By implication, all other BIR rulings issued inconsistent with the RMC are revoked accordingly. As a matter of fact, BIR Ruling No. DA-061-04 is revoked by the RMC. Thus, it is suggested that a review of existing employee structure and job descriptions in relation to their tax treatments is hereby recommended to ensure that the same is in compliance with the RMC.

Related posts:
a.Withholding tax on compensation
b.Exempt compensation

Suggested readings:
a. Villuga vs. NLRC, 225 SCRA 537
b. Republic Act No. 8756, amending E.O. No. 226

Last year, a new law was passed giving exemptions to certain compensation income with the end view of uplifting the economic standing of some class of compensation income earners. Republic Act No. 9504 had became effective on July 6, 2008 and provides a tax-free salaries for minimum wage income earners with respect to their basic minimum wage salaries, holiday pays, hazard pays, overtime pays, and night shift differentials (this I commonly term as B-HON). Minimum wage is the lowest salary that an employer can pay its employee and is set by the Regional Tripartite Wages and Productivity Board (RTWPB) of the Department of labor and Employment(DOLE) on a per region basis. Holiday pays are those required by the Labor Code of the Philippines to be paid on certain holidays (e.g. Labor day, Araw ng Kagitingan, etc.), overtime pay is compensation for worked performed beyond the regular 8-hour work, night shift differentials is a 10% on top of the regular rate for work done from 10:00 p.m. to 6:00a.m., while hazard pay is one required by law for hazardous industries. Thus, it may mean a lot to bargain for a minimum wage (P382 in Metro Manila now) plus allowances and benefits than for a straight basic salary higher than the minimum wage but with the same total amount.

Another exempt compensation are de minimis benefits enumerated under the Bureau of Internal Revenue (BIR) Revenue Regulations. De minimis benefits are those of relatively small values furnished by the employees to uplift the welfare and economic standing of its employees. They are specifically enumerated in the regulations (RR 8-00, as amended) like rice allowance of P1,500 a month, uniform allowance of P4,000 a year, cash gift of P5,000 a year under certain condition, medical allowances, laundry allowance, etc. Taken individually, they seem to be small amounts, but if all are applied and maximized, then, it may mean much to the employees take home pay.

Another is the P30,000 13th month pay, other bonuses and other benefits provided under the Tax Code. This covers the statutory 13th month pay to the extent of P30,000 a year. Other bonuses and those de minimis benefits exceeding the limitations are considered, in case the 13th month pay is less than P30,000.

As to managerial and supervisory employees, fringe benefits is also an exemption as to them, but taxable under the employer at the rate of 32% based on the grossed-up monetary value. Fringe benefits refer to those benefits granted by the employer to the managerial or supervisory employees other than de minimis benefits like housing benefits, car plans, grocery and personal items, personal foreign travels and the likes, on top of their basic pay.

Its a good thing also on RA No. 9504 that personal exemptions deductible in computing the individual income tax are being increased from P20,000/P25,000/P32,000 basic personal exemption (BPE) based on personal status, to a uniform amount of P50,000. Likewise, the P8,000 per qualified dependent child had become P25,000 per qualified dependent child. By implication, a Filipino with four qualified dependent child with a taxable income of at least P150,000 a year is not taxable.

While the above seemed to be great for employees, they must be applied properly and with observance of the requirements and conditions for their applicability. BIR is vigilant in those items as it had been greatly abused in the past. Please consult your tax lawyer or professional on how the same will properly be applied so you won’t have any problems in the future.

Related posts:
a. Withholding tax on compensation, how it works?

In this post, let us discuss what are these withholding taxes and how it works. Under the Tax Code, the BIR is allowed to implement a withholding tax system and thus, it issued Revenue Regulations No. 2-98. At present said regulation has undergone various amendments. The BIR now implements three types of withholding taxes:

a. Creditable withholding tax;
b. Final withholding tax; and
c. Withholding tax on compensation

This withholding tax system is a system of advance collection scheme where the approximate income tax of a specific income payment is being deducted and remitted to the BIR using the appropriate return (BIR Forms No. 1601E, 1601F or 1601C). The rate required to be withheld actually approximates the amount of tax due on the transaction. The payor claiming the item as an expense is constituted as a withholding tax agent that is made accountable thereto by mandate of the Tax Code. Failure to comply such mandate is sanctioned by law and regulation and it proves to be costly because the said expense shall be disallowed from deducted expenses in the income tax return (ITR), and will be assessed as follows:

a. Income tax at 30% based on the gross amount of disallowed expense;
b. Withholding tax at the applicable rate to such item based also on the gross amount; and,
c. 25% surcharge, 20% interest and compromise penalties, if any on both of the above

On the part of the payee, proceeds will be received net of withholding tax and will be furnished a certificate as proof of such withholding (creditable withholding tax or CWT or EWT, certificate of withholding taxes on compensation or WC, or certificate of final income tax withheld or FWT). This certificates will now be used in paying the tax depending on what type of withholding tax was applied.

In creditable withholding tax (termed sometimes as expanded withholding tax, EWT, or creditable tax withheld at source), certificates will be used as tax credit that is deductible from the tax due upon filing the income tax return – quarterly, or annual income tax return. Example of this are payments for rentals, professional fees, and the likes. In withholding tax on compensation, the certificates will serve as the income tax return under substituted filing if the employee has only one employer. If employee is earning other taxable income or has multiple employer, then, said certificates will be used as a tax credit also from the employees income tax due at the annual income tax return.

The other type of withholding is the final withholding tax (FWT) for income payments that are subject to final taxes like interest income from bank deposits, royalties, annuities, dividends, and the likes. In FWT, the payee is no longer required to file a return because the FWT return made by the payor constitutes final payment of the tax. In other words, the amount received by you as a payee is net of final withholding tax so it could no longer be assessed.

By this, the BIR is more assured that the income will be declared and reported by the recipient of income, thus, this is in the form of a check and balance. This helped the BIR increase its annual collection from taxes thereby expanding and enhancing the system with its top-twenty thousand corporations (TTC), and the newly ruled top-5,000 individuals engaged in trade or business, on in the practice of profession. The BIR is now on computerized matching and it could easily trace discrepancies of payor declared and payee undeclared or vice versa. If found to have under declared, then the BIR will assess the corresponding tax by referring to the payor’s declared amount in BIR Form 1601E and other related documents.

Please note however that this system is applicable only with respect to resident payees in the Philippines. If the payor is a non-resident and the payee is resident, this will not apply. Likewise, this system is only applicable to those items of expenses and income payments enumerated under RR No. 2-98. If not listed in there, then it is not subject to withholding tax. Furthermore, the tax base of the withholding should be the gross payment, exclusive of VAT. If services and goods are bought from the same supplier, the applicable rate shall be separate for good and separate for service, except if the other is incurred in furtherance of the other and the amount is immaterial, in which case, it maybe aggregated.

For those engaged in trade or business, or practice of profession, please be mindful of your obligation to withhold on income payments. Prevention is better than cure. Prevent headache by complying your obligation as withholding tax agent.

Related posts:

a. Top-twenty thousand corporation, how is it?
b. How withholding taxes on compensation works?

a. In the sale of goods purchased at P100 for P150, P50 is the increase of wealth.
b. In rendering a legal opinion for a fee of P5,000, the whole amount is an increase of wealth.
c. An increase in the value of an owned land of P100,000 (revaluation increment), there is yet no flow of wealth until the same is sold.
d. In the receipt of stock dividend, there is yet no increase of wealth until the same are sold.
e. Decrease of anticipated liability in the future because of a decrease of currency valuation contracted to be settler is not yet a flow of wealth until actually settled at such lower amount.

Actual collection may not be necessary in some cases for as long as the right thereto has already accrued and is entitle to collect at some point in time in the future. In accounting parlance, accrual accounting dictates that there is an income when the earning process is already complete. To illustrate, the sale of goods is already taxable at the point of sale even when the proceeds is not yet collected. Rendering of a service for a fee is already taxable after the services are rendered despite the fact that there is no collection yet. The reason is that the seller of goods or the person who rendered the service is already entitled the right to collect.

There is income when there is a flow of wealth. Even income from illegal activities, being a flow of wealth, is also an income. Even a liability that is condoned by the creditor in favor of the debtor may constitute an income. Differentiated from capital, capital is a fund while income is a flow from the use of such fund. Capital is wealth, while income is the service or the return from the use of such wealth. Property or fund is the tree, while income is the fruit. Labor is a tree and income the fruit.

For income tax purposes, taxability income has the following requisites:
a. there must be an income, gain or or profit
b. the income, gain or profit must have been received OR realized during the taxable year
c. the income gain or profit is not exempt from income tax

For tax purposes, tax on income will be affected by many factors such as the nature of income, classification of taxpayer, source of income, and other factors.