TAXN03B

TRANSFER AND BUSINESS TAXES

PREFERENTIAL TAXATION
 Senior Citizens Law
 Omnibus Investments Code (Book 1 of Executive Order 226)*
 Exemption from income tax of qualified senior citizen
 Policy and the Board of Investment (BOI)
 Tax incentives for qualified establishments selling goods and
services to senior citizens  Preferred areas of investment
 Magna Carta for Disabled Persons*  Investment Priority Plan
 Tax incentives for qualified establishments selling goods and  Registration of investments
services to disable persons
 Fiscal incentives to BOI registered enterpirses
 Special Economic Zone Act
 Barangay Micro Business Enterprises (BMBEs) Act*
 Policy of the Philippine Economic Zone Authority (PEZA)
 Registration of BMBes
 Registration of Investments
 Fiscal Incentives to BMBEs
 Fiscal Incentives to PEZA-registered economic zone enterprises
 Double Taxation Agreements (DTA)
 Nature and purpose of DTAs
 Mannger of giving relief from double taxation
 Procedure for availment of tax treaty benefits
1. The Expanded Senior Citizen’s Act of 2003 (RA 9257)
 Senior citizen or elderly refers to any resident Filipino citizen aged 60 years old and above.
 Under RA 9257, a senior citizen or elderly is entitled to a 20% discount in certain establishments such as hotels and similar
lodging establishments, restaurants, recreational centers and other places of culture, leisure and amusements, hospitals,
drugstores, and services such as medical, dental, domestic, air, sea and land transport, and funeral or burial service providers.
 The discounts granted to senior citizens by covered establishments and service providers are allowed as special deductions
against gross income.

Conditions for deductibility of sales discounts to senior citizens

1. Only that portion of the gross sales exclusively used, consumed, or employed by the senior citizen shall be eligible for the
deductible sales discount.
2. The gross selling price and the sales discount must be separately indicated in the official receipt or sales invoice issued by the
establishment for the sale of goods or services to the senior citizen.
3. Only the actual amount of the discount granted or sales discount not exceeding 20% of the gross selling price can be deducted
from gross income, net of VAT, if applicable.
4. The discount can only be allowed as a deduction from gross income for the same taxable year that the discount is granted.
5. The business establishment giving sales discount to qualified senior citizens is required to keep a separate and accurate record of
sales which shall include the name, TIN, ID, gross sales/receipts, discounts granted, date of transaction, and invoice number for
every sale transaction to senior citizen.
Additional Claimable Compensation Expense for Senior Citizen Employees
 Under RA 9257, private establishments employing senior citizens shall be entitled to additional deduction from
gross income equivalent to 15% of the total amount paid as salaries and wages to senior citizen.
Conditions for deductibility of additional compensation
1. Employment shall have to continue for at least 6 months
2. The annual taxable income of the senior citizen does not exceed the poverty level determined by NEDA.

Note: In the purchase of goods and services which have promotional discount, the senior citizen or PWD can avail of
the promotional discount or the senior citizen/PWD discount, whichever is higher .
2. Discounts to Disabled Persons (RA9257)
 A person with disability pertains to an individual suffering from restrictions or different  abilities as a result of mental, physical, or
sensory impairment to perform an activity in a manger or within the range considered normal for human beings.
 Disability pertains to physical or mental impairment that substantially limits one or more psychological, physiological, or
anatomical functions of an individual or activities of such individuals
Discounts to persons with disability
 Similar to senior citizens, persons with disability are entitled to a 20% discount from certain establishments such as hotels and
similar lodging establishments, restaurants, sports and recreation centers, places of culture, leisure and amusement, drugstores on
the purchase of medicine, medical and dental services I private facilities and domestic air, sea, and land transport.
 The discounts to persons with disability shall be allowed as a special deduction under the same terms and conditions as those for
senior citizens.
Additional Claimable Compensation Expense for Persons With Disability
 Private entities that employ disable persons who meet the required skills or qualifications, either as regular employees, apprentices
or learners, shall be entitled to an additional deduction from their gross income, equivalent to twenty-five percent (25%) of the
total amount paid as salaries and wages to disabled persons.
Cost of Facilities Improvement for Disabled Persons
 Under RA 7277, private entities that improve or modify their physical facilities in order to provide reasonable accommodation for
disabled persons shall also be entitled to an additional deduction from their income equivalent to fifty percent (50%) of the direct
costs of the improvements or modifications.
Deductions from Gross Income
 Seller to SC/PWD
 Discount = deduction gross income (based on cost)
 Employers of SC/ PWD
 SC employees +15% deduction
 PWD employees +25% deduction
 Cost of facility improvement for PWD
 +50% deductions
Granny, 69 years old, took an air-conditioned Victory Liner Bus from Pampanga to Manila with a normal fare of 1,000. Suppose that instead,
Granny took an airplane from Clark Airport to NAIA and the fare was 2,100 (inclusive of taxes and gross of discounts). How much should be
paid by Granny?

A senior citizen who is also a person with disability bought medicine from a drugstore with a list price of 51,520. If the item is gross of discount
and VAT, how much should senior citizen pay?

A senior citizen who is also a person with disability bought medicine from a drugstore with a list price of 51,520. If the item is gross of discount
and VAT, how much special deduction can be claimed by the drugstore in computing its taxable income?
3. Special Economic Zone Act
 PEZA - attached to the Department of Trade and Industry - is the
Philippine government agency tasked to promote investments,
extend assistance, register, grant incentives to and facilitate the
business operations of investors in export-oriented manufacturing
and service facilities inside selected areas throughout the country
proclaimed by the President of the Philippines as PEZA Special
Economic Zones.
 It oversees and administers incentives to developers/operators of
and locators in world-class, ready-to-occupy, environment-
friendly, secured and competitively priced Special Economic
Zones

Fiscal Incentives to PEZA-registered economic zone
enterprises
1. Income Tax Holiday (ITH) – 100% exemption from corporate
income tax  shall be exempt from real property taxes
 4 years ITH for Non-pioneer Project
 6 years ITH for Pioneer Project
and allowances and minus cost of sales or direct costs but before
any deduction is made for administrative expenses or incidental
losses during a given taxable period)
3. Tax and duty free importation of raw materials, capital
equipment, machineries and spare parts.
4. Exemption from wharfage dues and export tax, impost or fees
5. VAT zero-rating of local purchases subject to compliance with
BIR and PEZA requirements
6. Exemption from payment of any and all local government
imposts, fees, licenses or taxes. However, while under Income
Tax Holiday, no exemption from real estate tax, but machineries
installed and operated in the economic zone for manufacturing,
processing or for industrial purposes shall be exempt from real
estate taxes for the first three (3) years of operation of such
machineries. Production equipment not attached to real estate
7. Exemption from expanded withholding tax

2. Upon expiry of the Income Tax Holiday - 5% Special Tax on

Gross Income and exemption from all national and local taxes
(“Gross Income”  refers to gross sales or gross revenues derived
from the registered activity , net of sales discounts, sales returns
Definition of pioneering status
 
According to the Department of Trade and Industry (DTI),
pioneering status is given to businesses and investments that meet
the following criteria:
 
 It is engaged not just in the assembly and packaging, but the
manufacturing and production of goods, products, and raw
materials not found or produced in the Philippines Facilities provider
 It uses a process, design, formula, or method that converts raw Utilities provider
materials into another raw material or a finished product that Developer of ecozone
significantly utilizes indigenous raw materials
 It is engaged in agricultural activities or services that can
contribute to the Philippines’ self-sufficiency program
 It is engaged in the production of non-conventional fuels or the
production of equipment using non-conventional energy
sources
 It is engaged in other activities that meet the investment
criteria in the government’s Investment Priorities Plan, which
is updated annually
 It is not engaged in activities included in the Negative List
A PEZA-registered company who is entitled to an income tax holiday for some of its activities and is currently its 4 th year of operation.

  Registered Activities Unregistered Activities

Gross Income 5,000,000 900,000

Other Income 250,256

Operating Expenses of 2,472,525 (allocated 90% and 10% respectively)

Creditable WHT (first 3 quarters)………..24,500

Creditable WHT (last quarter)………..8,400

How much is the regular income tax if it is a domestic corporation whose assets exceed 100,000,000.
4. Omnibus Investments Code (Book 1 of Executive Order 226)* i. Jewelry

 Declaration of Investment Policies. - To accelerate the sound j. Fashion Garments

development of the national economy in consonance with the
principles and objectives of economic nationalism and in
pursuance of a planned economically feasible and practical
dispersal of industries and the promotion of small and medium
scale industries,
k. Machinery and equipment, raw materials and intermediate inputs in
support of the activities listed in the IPP.
 Fiscal incentives to BOI registered enterpirses

 Preferred areas of investment 1. Income Tax Holiday

 The IPP identifies priority economic areas entitled to incentives 2. Exemption from Taxes and Duties on Imported Spare parts
under the Omnibus Investments Code of 1987. The 1999 IPP 3. Exemption from Wharfage Dues and Export Tax, Duty, Import and
includes preferred sectors being promoted to direct capital flows Fees
to the best locations in the countryside. 4. Tax Exemption on Breeding Stocks and Genetic Materials
 Among these: 5. Tax Credits
a. Agribusiness  
b. Halthcare and Wellness Products and Services
c. Information and Communications Technology
d. Electronics
e. Motor Vehicle Products
f. Infrastracture
g. Tourism
h. Shipbuilding/Shipping
5. Barangay Micro Business Enterprises (BMBEs)
 is a 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 do not exceed P3,000,000  
 To qualify as  a BMBE, an enterprise must not be a branch or subsidiary of a large scale enterprise and its policies, and modus
operandi must not be determined by a large scale enterprise such as in the case of franchise.
 To avail of the benefits and privileges of a BMBE, an applicant must secure a certificate of authority to operate as a BMBE from the
Office of the Treasurer of the city or municipality that has jurisdiction.
Tax Exemption on Income from Operation
 Aside from other incentives afforded by law, the income of BMBE from their operation is exempt; hence, excluded from the
gross income subject to regular income tax. BMBE’s file an Annual Information Return in lieu of the income tax return.
However, their non-operating, passive, and capital gains are subject to the appropriate type of income tax.
Moira has a customized fiber stone business. She has a total asset of 4,000,000 including the lot which she does
business on worth 1,000,000 book value. The results of her operation show the following:

Gross income from the fiber stone 500,000

Interest on notes receivable 10,000
Interest on bank deposits 1,000
Interest on bank deposits, USA 5,000
Royalties, PH 6,000
Dividends from a domestic corp 1,000

(FMV=4,000,000; Cost=3,700,000)
If Maribel obtained a certificate of authority to operate a BMBE, how much is the gross income from operation exempt
from tax?
 
6. Double Taxation Agreements (DTA)
 Procedure for availment of tax treaty benefits

 The RMO prescribed the documentary requirements for the applications for relief from double taxation pursuant to
existing Philippine tax treaties.
 For specific type of income such as business profits, profits from shipping and air transport, dividend, interest,
royalty, capital gains, income from services and other income earnings, a specific TTRA form is assigned.
 Documentary requirements must accompany all duly accomplished TTRAs.

 The filer may either be the income earner or the duly authorized representative of the income earner.

 The International Tax Affairs Division (ITAD) receives all submitted TTRAs.