TAX IMPLICATIONSenior Citizens Act of 2010

Presented by:

Susan D. Tusoy

Asst. Chief, Assessment Division, RR 19

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Legal Basis RA 7432 / RR 2-94 RA 9257 / RR 4-2006 RA 9994

RMC 45-2010 RR 7-2010 RR 8-2010

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Prescribe the guidelines for: The availment of the income tax exemption of senior

citizens; VAT exemption privileges Tax privileges granted to establishments giving

discount Tax implication of taking care and supporting senior

citizen Tax privileges granted to entities who engage senior

citizen as their employees3

PRIVILEGES for the SENIOR CITIZENS

5. in actual fare for land transportation travel

6. in actual transportation fare for domestic air transport services and sea shipping vessels and the like

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PRIVILEGES for the SENIOR CITIZENS

9. on funeral and burial services for the death of senior citizens

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PRIVILEGES for the SENIOR CITIZENSc. the grant of a minimum of five percent

(5%) discount relative to the monthly utilization of water and electricity supplied by the public utilities Meters are registered in the name of SC

residing therein Monthly consumption does not exceed

100kwh for electricity 39 cubic meters for water

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PRIVILEGES for the SENIOR CITIZENS

d. Exemption from training fees for socioeconomic programs

e. Free medical and dental services diagnostic and laboratory fees in all government facilities

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PRIVILEGES for the SENIOR CITIZENS

f. Free vaccination against the influenza virus and pneumococcal disease for indigent senior citizen patients

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PRIVILEGES for the SENIOR CITIZENS

g. Educational assistance to senior citizens

h. The continuance of the same benefits and privileges given by the GSIS, the SSS and the PAG-IBIG as the case maybe, as are enjoyed by those in actual service

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PRIVILEGES for the SENIOR CITIZENSi. The retirement benefits of retirees shall be

regularly reviewed to ensure their continuing responsiveness and sustainability

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PRIVILEGES for the SENIOR CITIZENS

j. The government may grant special discounts for senior citizens on purchase of basic commodities

k. Provision of express lanes for senior citizens

l. Death benefit assistance of a minimum of P 2,000.00

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Income Tax of Senior Citizen Generally, qualified SC deriving returnable

income, whether from compensation or otherwise, are required to file and pay income tax;

If qualifies as Minimum Wage Earner Exempt from income tax subject to the

provisions of RR 10-2008

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Income Tax of Senior Citizen If aggregate amount of gross income do not

exceed the personal (basic and additional) Exempt from Income Tax Not required to file ITR

The exemption of SC will not extend to all types of income earned during the taxable year.

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TAXES ON PASSIVE INCOME(1) 20% final withholding tax on interest income;

royalties; prizes and other winnings

(2) 7 ½ % final withholding tax on interest income from a depositary bank under the expanded foreign currency deposit system

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TAXES ON PASSIVE INCOME3) Withholding taxes on interest income on pre-

terminated long term deposit:

less than 3 years = 20 %

3 years to less than 4 years = 12 %

4 years to less than 5 years = 5 %

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TAXES ON PASSIVE INCOME4) 10% final withholding tax on cash and/or

property dividends

5) Capital gains tax from sales of shares of stock not traded in the stock exchange

6) 6% final withholding tax on presumed capital gains from the sale of real property

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Special Features The granting of exemptions and

discounts shall be for the exclusive use and enjoyment or availment of the senior citizen on the purchase of goods and services enumerated in this Act.

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Special Features SC can avail of the promotional discount or

the discount provided herein, whichever is higher If the promotional discount is less than the

minimum discount, the seller shall increase the discount to meet the minimum.

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Tax Treatment of the Discount Granted to SC Establishments granting the discount may

claim the discounts granted as a tax deduction based on the cost of the goods sold or services rendered.

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Tax Treatment of the Discount Granted to SC Example:

Selling Price (10 pcs. Medicine X @P1,000) P10,000.00*

Less 20% Discount 2,000.00

Amount payable by the Senior Citizen P 8,000.00

*Net of VAT of P1,200.00 (12%)

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Comparison on Benefits

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RA 9994 Old Law RegularInvoice Price 11,200.00 11,200.00 11,200.00 Less: 12% VAT *1,200.00 Sales -exclusive of VAT 10,000.00 11,200.00 11,200.00 Less 20% Discount 2,000.00 2,240.00 Payable by SC 8,000.00 8,960.00 11,200.00

*[(11,200 / 112%) x 12%] = P1,200

Tax Treatment of the Discount Granted to SC The selling price to be charged by the seller

must be net of VAT because SC is exempt from VAT

The cost of discount shall be allowed as a deduction from the gross income for the same taxable year

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Tax Treatment of the Discount Granted to SC For the establishment to be allowed to claim

the discount as a deduction, the amount of sales that must be reported for tax purposes is the undiscounted SP and not the amount of sales net of the discount.

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Tax Treatment of the Discount Granted to SC The income statement of the seller must

reflect the discount not as a reduction from sales but as a deduction from its gross income.

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Tax Treatment of the Discount Granted to SC

The entry to record the transaction in the books of the seller:

Debit –Cash P 8,000.00

Senior Citizen Disc. Exp. 2,000.00

Credit – Sales P10,000.00

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Tax Treatment of the Discount Granted to SC

The discount granted by the seller of qualified goods and services shall be treated as an ordinary and necessary expense under the category of itemized deduction and can only be claimed if the seller does not opt

the OSD.

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Conditions in claiming the discount granted as an additional item of deduction:

Only that portion of the gross sales exclusively used, consumed or enjoyed by the SC shall be eligible for the deductible sales discount;

The gross selling price and the sales discount must be separately indicated in the OR or SI

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Conditions in claiming the discount granted as an additional item of deduction:

Only the actual amount of the discount granted or a sales discount not less than the statutory rate, whichever is higher, based on the gross selling price can be deducted from gross income/gross receipts;

The seller must record its sales inclusive of the discount granted;

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Conditions in claiming the discount granted as an additional item of deduction:

The discount can only be allowed as a deduction from gross income for the same taxable year that the discount is granted;

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Conditions in claiming the discount granted as an additional item of deduction:

Required to keep accurate record of sales Name of SC OSCA ID Gross Sales/Receipts Sales discount granted Date of transaction Invoice No. of every transaction

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Conditions in claiming the discount granted as an additional item of deduction:

Only business establishments selling any of the qualified goods and services to Senior Citizens where an actual discount was granted may claim the deduction;

The seller must not claim the OSD

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Availment of Income Tax Exemption of SCA SC who is MWE, or whose income does not

exceed his personal exemption, will be exempt from income tax upon compliance with the ff: A SC must first be qualified by submitting a

certified true copy of OSCA ID Card Must file a sworn statement on or before Jan. 31

of every year that his taxable income of the previous year does not exceed the poverty level

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Availment of Income Tax Exemption of SC If qualified, his name shall be recorded by the

RDO in the Master List of Tax-Exempt SC for that particular year

A senior citizen who is entitled to substituted filing is not required to file ITR pursuant to RR 2-98 as amended.

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Special Features The total amount of the claimed tax deduction

net of VAT shall be included in their gross sales/receipts for tax purposes and shall be subject to proper documentation

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LIABILITY FOR OTHER INTERNAL REVENUE TAXES

(1) VAT or other percentage taxes

(2) Donor’s tax

(3) Estate tax

(4) Excise tax on certain goods and

(5) Documentary stamp tax

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Exemption from VAT Sales of goods and services under Sec. 4 & 5

of this RR shall be exempt from VAT, except water and electricity (RR 8-2010);

The seller must follow the invoicing requirement (RR 16-2005). If using POS, the machine tape must segregate exempt sales from taxable sales;

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Exemption from VAT The input tax attributable to the exempt sale

shall not be allowed as input tax credit and must be closed to cost or expense account.

The exemption shall not cover indirect taxes

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Personal Exemptions of Benefactors of Senior Citizen The benefactor shall be entitled to claim the

basic personal exemption of P50,000 Not entitled to additional P25,000 If required to file an ITR, the benefactor shall

state therein the name, birtday and OSCA ID No. of the dependent senior citizen

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Additional Deduction for those Employing Senior Citizen Private establishments are entitled to

additional deduction of 15% of total amount paid as salaries and wages The employment shall have to continue for a

period of at least six (6) months The annual taxable income of SC does not exceed

the poverty level. The SC shall submit sworn certification.

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IllustrationGIVEN DATA:

Sales - Exclusive of VAT 10,000.00 * 200,000.00 Cost of sales -VAT exclusive 8,000.00 150,000.00 Operating Expenses 33,600.00 ***Inclusive of discount** inclusive of input tax of P3,600Required: Compute for the ff: 1. VAT Payable 2. Taxable Income

SALES TO SC

TOTAL SALES FOR THE MONTH

EXCLUDING SALES TO SC

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VAT PayableSales 200,000.00 Output Tax 24,000.00 Less Input Tax from Purchases 18,000.00 from Purchases (sold to SC) - Operating Expenses 3,428.57 *** 21,428.57 VAT Payable 2,571.43 ***Input Tax on Operating Expenses 3,600.00 Add: Pro-rated VAT on OPEX (P3,600 x 10/210) x 200/210 Total 3,428.57

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Taxable IncomeSales 210,000.00 Cost of Sales 158,960.00 *Gross Income 51,040.00 Senior Citizen Discount 2,000.00 Operating Expenses 30,171.43 **Taxable Income 18,868.57 * Cost of Sales

VAT taxable Sales 150,000.00

Sales to Exempt Person + VAT component 8,960.00

158,960.00 **Operating Expenses -net of VAT 30,000.00 Add: Pro-rated VAT on OPEX (P3,600 x 10/210) 171.43

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Daghang salamat!

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