RR No. 5-2017 — Prescribes the rules and regulations implementing RA No. 10754 [An Act Expanding the Benefits and Privileges of Persons with Disability (PWD)] relative to the tax privileges of persons with disability and tax incentives for establishments granting sales discount, and the guidelines for the availment, amending RR No. 1-2009 (Published in Manila Bulletin on April 22, 2017) Digest | F

BUREAU OF INTERNAL REVENUE REPUBLICOF THE PHILIPPINES DEPARTMENT OF FINANCE RECORDS MGT. DIVISION BUNEAU OF INTERNAL RIVTNUE APR 20 2017 312 pM. Urean

RECEIVEG

April 11,2017

REVENUE REGULATIONS NO. 5-2013

SUBJECT :Rules and Regulations Implementing Republic Act No.10754, entitled "An Act Expanding the Benefits and Privileges of Persons with Disability Guidelines for the Availment Thereof, Amending Revenue Regulations No. 1-2009 PWD Relative to the Tax Privileges of Persons with Disability and Tax Incentives for Establishments Granting Sales Discount, and Prescribing the

TO All Internal Revenue Officers and Others Concerned

SECTION 1. SCOPE.

hereinafter referred to as the Act,these Regulations are hereby promulgated to Republic Act No.9504.in relation to Sec.3 of Republic Act (R.A. No.10754.otherwise known as An Act Expanding The Benefits And Privileges Of Persons With Disability Pursuant to the provisions of Section 244 of the Tax Code of 1997. as last amended by

1.1 Prescribe the guidelines for the implementation of the tax privileges of persons with

disability and their benefactor and tax incentives for establishments granting twent

as the Magna Carta for Persons with Disabilityand R.A.No.10754;and percent (20%sales discount and exemption from Value-added Tax (VAT under Sections 32 and 33 of R.A.7277,as amended by R.A.No.9442.otherwise known

1.2 Amend certain provisions of Revenue Regulations No. 1-2009.

SECTION 2.DEFINITION OF TERMS.

For purposes of these Regulations, the following terms and phrases shall be defined as follows:

2.1 Act-shall refer to Republic Act No.7277.as amended by Republic Act No.9442

otherwise known as the Magna Carta for Persons with Disability"and R.A. No. with Disability (PWD) 10754 otherwise known as An Act Expanding the Benefits and Privileges of Persons

2.2 Person with Disability (PWD- are those who have long-term physical, mental classified/categorized by the Department of Health (DOH For purposes of these Regulations, the term PWD shall be further intellectual or sensory impairments which in interaction with various barriers may hinder their full and effective participation in society on an equal basis with others.

2.3 Disability - shall mean a physical or mental impairment that substantially limits one or more psychological, physiological or anatomical function of an individual or having such an impairment. activities of such individuals; a record of such an impairment: or being regarded as

2.4 Benefactor- shall refer to a Filipino citizen or resident alien,caring for,giving chief consanguinity or affinity claiming such PWD as dependent support and living with the PWD, who is in the fourth 4th civil degree of

2.5 "PWD-Dependent -- shall refer to a Filipino citizen who is a PWD, whether minor or of legal age, related to the benefactor within the fourth (4th) civil degree of dependent upon such benefactor for his/her support. consanguinity or affinity, not gainfully employed and who is living with and chiefly

2.6 Sales Discount -- shall refer to the actual discount, or that discount which in no case shall exceed 20% of the gross selling price of goods sold or services rendered to PWD by certain business establishments enumerated under the Act and these Regulations.

2.7 Establishment - shall refer to any entity, public or private, duly licensed and/or authorized by the national government agencies or by the local government units to Operate.

SECTION 3. SALES DISCOUNTS WHICH MAY BE CLAIMED BY OUALIFIEL PERSONS WITH DISABILITY (PWD).

enjoyment or availment of the PWD: Qualified PWD shall be entitled to claim at least twenty percent (20%) discount from the following establishments relative to the sale of goods and services for their exclusive use and

3.1 Hotels and similar lodging establishments; restaurants and recreation centers:

3.2 Theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement;

3.3 All drugstores regarding purchase of generic and branded medicine:

3.4 Medical and dental services including diagnostic and laboratory fees (e.g., x-rays, computerized tomography scans and blood tests) and professional fees of attending the Philippine Health Insurance Corporation (PhilHealth); doctors in all government facilities or all private hospitals and medical facilities subject to the guidelines to be issued by the DOH, in coordination with

3.5 Domestic air and sea transportation based on the actual fare. For promotional fares, the PWD can avail the establishment's offered discount or the 20% discount provided herein, whichever is higher and more favorable;

3.6 Land transportation privileges based on the actual fare such as, public utility buses or jeepneys (PUBs/PUJs), taxis, Asian Utility Vehicles (AUVs), shuttle services and National Railways (PNR), and such other similar infrastructure that will be constructed, established and operated by public or private entity; and public railways such as Light Rail Transit (LRT), Metro Rail Transit (MRT), Philippine

3.7 Funeral and burial services for the death of the PWD: Provided, that the beneficiary or any person who shall shoulder the funeral and burial expenses of the deceased of the death certificate and PWD Identification Card (ID) or in its absence, the PWD shall claim the discount under this rule for the deceased PWD upon presentation

original or certified true copy of the proof of registration from the issuing local government unit. Such expenses shall cover the purchase of casket or urn, embalming, hospital morgue, transport of the body to intended burial site in the place of origin, but shall exclude obituary publication and the cost of the memorial lot.

enumeration expressly provided by law shall not be considered for the 20% discount privilege notwithstanding that the same are for the exclusive use and enjoyment or availment of the All other goods and services sold by the foregoing establishments not included in the above PW

SECTION 4. COMPUTATION OF THE DISCOUNT AND VAT EXEMPTION GRANTED TO OUALIFIED PERSONS WITH DISABILITY

enumerated under Section 3 hereof shall be computed in accordance with the following VAT on sale of goods or services with sales discounts granted by business establishments formula: Amount of sale (with VAT) Less: 20% Sales Discount Total Amount Due Less: 12% VAT Total Amount P 1,120.00 P.800.00 1,000.00 120.00 200.00

Provided that, the total amount of the claimed tax deduction net of VAT, if applicable, shall be allowed as a deduction from gross income for the same taxable year that the discount is granted: included in their gross sales receipts for tax purposes and shall be subject to proper documentation in accordance with the provisions of the Tax Code. This means that for the be reported for income tax purposes is the VAT-exclusive selling price of P1,000.00 and not the amount of sales net of the discount -- P800.00. The Two Hundred Pesos (P200.00) cost of the discount in the above illustration, shall be establishment to be allowed to claim the discount as a deduction, the amount of sales that must

SECTION 5. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS

DEDUCTION FROM GROSS INCOME.

Establishments granting sales discounts to PWD on their sale of goods and/or services shall be entitled to deduct the said sales discount from their gross income subject to the following conditions:

5 .1 All establishments which granted sales discounts on their sale of goods and/or services taxable year that the discount is granted; Provided that, the name of PWD and the to PWD may claim the said discount as deduction from the gross income for the same PWD Identification Card (PWD ID) No. are reflected in the required record of sales for PWD.

shall be subject to proper documentation and to the provisions of National Internal Revenue Code (NIRC), as amended, thus if there are no name of PWD and As expressly provided by law, the total amount of the claimed tax deduction net of PWD Identification Card (PWD ID) No. in the records of sales, the sales discount claimed as deduction by business establishments shall be disallowed. VAT, if applicable, shall be included in their gross sales receipt for tax purposes and

For percentage taxpayer, the armount of sales discounts shall be excluded for purposes. taxable year that the discount was granted. of computing the three percent (3%) percentage tax but shall be included as part of the gross sales/receipts for income tax purposes. The sales discount granted shall then be accounted as deduction from the gross income of the establishment for the same

Computation of Discount on Non-VAT Taxpayer:

Sales/Receipts Less: 20% Discount P1,120.00 224.00 Amt. Payable by PWD/ Reccived by Seller Multiply by tax rate X 896.00 3 % Percentage Tax Due P 26.88

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

5.3 The seller must record its sales inclusive of the discount granted, not as a reduction of sales to arrive at net sales, but as a deduction from its gross income (sales less cost Section 5.1 hereof in the books of the seller should be as follows: of sales). Thus the entry to record the transaction as illustrated in Section 4 and

VAT

Debit -- PWD Discount Expense Debit -- Cash Credit -- Sales- P800 200 P1,000

b. Non-VAT

Debit -- PWD Discount Expense Debit - Percentage Tax Due Debit - Cash Credit -- Sales- Credit - Tax Payable ### P 26.88 P896 224 P 26.88 P1,120

5.4 The sales discount shall be treated as a necessary and ordinary expense duly deductible from the gross income of the selier falling under the category of itemized deductions;

5.5 The sales discounts shall not be accounted as deductible expense for taxpayers availing the Optional Standard Deduction (OSD):

5.6 The amount of sales discount shall only be allowed as itemized deduction from gross income for the same taxable year that the discount is granted;

5.7 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 PWD;

5.8 Only the actual amount of the sales discount granted or a sales discount not the gross income, net of value added tax, if applicable, and shall be subject to proper documentation under pertinent provisions of the Tax Code of 1997, as amended: and exceeding 20% of the gross selling price or gross receipts can be deducted from

5.9 The business establishment giving sales discount to qualified PWD is required to keep separate and accurate records of sales, which shall include the name of the person with disability, PWD ID Number, gross sales/receipts, sales discount granted, date of transactions and invoice number for every sales transaction to PWD.

SECTION 6. PROHIBITION ON AVAILMENT OF DOUBLE DISCOUNTS.

higher discount as may be granted by the commercial establishment and/or under other existing laws or in combination with other discount program/s. Thus, a PWD who is at the same time a senior citizen can only claim one 20% discount on a particular sales transaction. The foregoing privileges granted to PWD shall not be claimed if the said PWD claims a

SECTION 7. EXEMPTION FROM VALUE-ADDED TAX (VAT) ON SALE OF DISABILITY. GOODS OR SERVICES TO QUALIFIED PERSONS WITH

7.1 Sales of any goods and services under Sections 3 of these Regulations to PWD shall be exempt from the value-added tax. To ensure the full entitlement of the person with any VAT to the PWD. disability to the discount prescribed in the Act, the sellers are precluded from bilting

7.2.The sale to a person with disability must follow the invoicing requirements prescribed 4-2007 and Revenue Memorandum Order No. 12-2013. If the seller uses a Point of under Revenue Regulations (RR) No. 16-2005, as amended by RR Nos. 2-2007 and Sale Machine, Cash Register Machine, e-Invoicing or other receipting receipts/invoices must properly segregate the exempt sales from the taxable sales and must foilow the invoicing requirements prescribed under Revenue Regulations No. 10- 201 5. software/application in lieu of the manual sales invoice, the machine/system

7.3 The input tax attributable to VAT exempt sale is considered as cost or an expense account by business establishments and shall not be allowed as an input tax credit.

7.4 If there is no name of PWD and PWD ID No. indicated in the records of sales, the input tax attributable to VAT exempt sale claimed as an expense by business establishments shall be disallowed.

7.5 The exemption herein granted will not cover other indirect taxes that may be passed the discount must be on the total cost of the goods or services charged by the seller on by the seller to a PWD buyer, such as percentage tax, excise tax, etc. In such a case.

exclusive of the VAT.

SECTION 8. ADDITIONAL EXEMPTIONS OF BENEFACTORS OF QUALIFIED

PERSONS WITH DISABILITY.

8.1 Effective taxable year 2016. a Benefactor of a qualified PWD, may claim the additional exemption of twenty-five thousand pesos (P25,000) for each PWD, if such PWD, regardless of age, satisfies all of the following: a. Filipino citizen; b. within the fourth (4") civil degree of consanguinity or affinity to the d. chiefly dependent upon and living with the taxpayer/benefactor. not gainfully employed; and taxpayer/benefactor;

8.2 The total number of dependents (qualified dependent children and/or qualified taxpayer/benefactor shall not exceed four (4): dependent PWD) for which additional exemptions may be claimed by the

8.3 The additional exemptions for qualified dependent PWD shall be claimed only by one taxpayer or by one of the spouses in the case of married individuals:

8.4 In the case of legally separated spouses. additional exemptions may be claimed only by the spouse who has custody of the child or children or PWD: Provided, that the number of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions of four (4);

8.5 The Taxpayer/Benefactor of the persons with disability shall submit the following documentary requirements to the Revenue District Office (RDO) where he is registered in order to claim the additional exemption, for the first year of claiming the exemption and after three (3) years or upon renewal of the PWD ID whichever comes first: b. Photocopy of PWD Identification Card issued by the Persons with Disability Duly accomplished BIR Form No. 2305;

C Development Office (C/MSWDO) of the place where the person with disability resides or the National Council on Disability Affairs (NCDA): Affairs Office (PDAO) or the City / Municipal Social Welfare and Sworn Declaration/Identification of Qualified Dependent PWD, Support

Birth Certificate of PWD; and Relationship (Annex A);

f Medical Certificale attesting to disabitity issued by in accordance with the Barangay Certification certifying that the PWD is living with the benefactor. Implementing Rules and Regulations of R.A. 10754; and

8.6 The submitted records of the PWD to the RDO must be used as reference for every taxable year, in order to validate the clained additional exemption for the same PWD renewal of the PWD ID whichever comes first. In case of Employee-Benefactor, the aforementioned documentary requirements must be submitted to the employer for record and withholding tax purposes. Such record must be renewed by Taxpayer/Benefactor after threc (3) years or upon

8.7 Illustrations.

No. 1: In 2016, M, CPA, is a widower who supports the following dependents living with him: I -- Foster child, 5 years old. E -- Brother, 24 years old, physically defective, gainfully employed G -- Sister, 26 years old, widow, with speech impairment, unemployed; C -- Legitimate child, 18 years old D -- Legitimate new born child: F -- Nephew, 2 years old, with hearing disability, illegitinate son of H -- Legitimate daughter of his widowed sister, 3 years old; A -- Mother of deceased wife, 65 years old, unemployed: B -- Legitimate child of deceased wife with her first husband, 20 years old: his deceased sister;

In October 2016, C married and G became gainfully employed What is M's personal and additional exemptions for the years 2016 and 2017?

2016

Basic personal exemption: Total Additional exemptions: P 25,000 x 4 ( any of the ff: C.D.F.G and P P 100.000.00 150.000.00 50,000.00

M may claim additional exemptions if he cares for and supports any or affinity to M, who is chiefly dependent upon and living with him, and not legitimate, illegitimate, or legally adopted child, foster PWD (regardless of age) who is within the 4th civil degree of consanguinity gainfully employed. child or a

If during the taxable year, any of the dependent children got married or any of the dependents became gainfully employed, M may still claim the at the close of such yearl. additional exemption as if C got married and G became gainfully employed

brother E and niece H are not dependents of M for purposes of claiming His mother-in-law A (a senior citizen without any disability), stepchild B. additional exemptions.

Note: (1) M has five qualified dependents (C, D, F, G and I) but can only (3) M cannot claim his mother-in-law A and brother E, a PWD, as his (2) M can claim an additional exemption for his stepchild B, only if disability and his brother is gainfully employed. claim a maximum of four qualified dependents. he legally adopts him. dependents since his mother-in-law is a senior citizen? without any

1 Sec.35 (C), NIRC, as amended 2 RR No. 7-2010, Sec. 11

(4) M cannot claim H, his niece, as his additional exemption. (5) Single status also applies to those who are widowed; and the civil status of tegally separated is married, for taxation purposes.

2017

Basic personal exemption: Additional exemptions: P 25,000 x 3 (D,F and I) P 50,000.00 75,000.00 Total P 125.000.00

M cannot claim anymore the additional exemption for his legitimate child C and his sister G, who got married and became gainfully employed respectively in 2016.

No. 2: X and W are husband and wife with six (6) minor children. They were legally separated in 2015, where the custody of five (5) children were awarded by the court to X, and one (1) child to W. W supports his brother L, who is mute, unmarried, unemployed and living with him. What is the personal and additional exemption of X and W in 2016?

Basic personal exemption: Additional exemptions: X: P 25,000 x 3 (3 children) P 75.000.00 50.000.00

Tota P 125.000.00

Basic personal exemption: W: Additional exemptions: P 25,000 x l (l child} P 25.000.00 50,000.00

Total P 75,000.00

custody. W is also a legally separated spouse with two (2) qualified qualified dependent child.'The total amount of additional exemptions that may X is legally separated spouse with five (5) qualified dependent children in his of consanguinity. X can claim additional exemptions for three (3) qualified be claimed by both spouses shall not exceed the maximum allowed of four (4) qualified dependents. dependents in her custody, a child and a PWD, who is within the fourth degree dependent children while W can claim additional exemption for one (l)

No. 3: Z, a CPA and Y, an employee are husband and wife with four (4) ininor additional exemption for her brother who is a PWD? children. Y supports her 14-year-old brother J, a PWD, living with them. Z claims the additional exemptions for their four (4) children. Can Y claim for

Answer: No. The total amount of additional exemptions that may be claimed by both spouses shall not exceed the maximum allowed of four (4) qualified dependents.

Suppose, Z and Y have only three (3) qualified dependent children, can Y claim for additional exemption for her brother who is a PWD? Answer: No. Only one spouse can claim the additional exemption for qualified brother-in-law J, who is related within the second (2nd) civil degree of affinity to the brother of his wife. dependent PWD. Z niay claim the additional exemption for his

who are Filipino citizens may only be granted upon presentation of any of the following SECTION 9. The privileges under the Act and in these Regulations available to PWD proof of his/her entitlement thereto:

9.1 An identification card issued by the Office of Persons with Disability Affairs (PDAO) or the City/Municipal Social Welfare and Development Office (C/MSWDO) of the place where the PWD resides; or

9.2 The passport of the PWD concerned with apparent disability; or

9.3 An Identification Card (ID) issued by the National Council on Disability Affairs (NCDA)

SECTION 10. PENALTIES.

10.1 Any violation of these Regulations shall be subject to the corresponding penalties under pertinent provisions of the Tax Code of 1997, as amended, and other applicable regulations issued by the BIR:

10.2 Further, any person who violates any provision of R.A. 10754 shall suffer the following penalties:

10.2.1 For the first violation of any provision of the Act and these Regulations, a hundred thousand pesos (P100,000) or imprisonment of not less than six months but not more than two years, or both at the discretion of the court: fine of not less than Fifty thousand pesos (P50,000) but not exceeding One

10.2.2 For any subsequent violation thereto, a fine of not less than One hundred six years, or both at the discretion of the court. thousand pesos (P100,000) but not exceeding Two hundred thousand pesos (P200,000) or imprisonment for not less than two years but not more than

10.2.3 Any person who abuses the privileges granted under the Law shall be pesos (P50,000), or both, at the discretion of the court. punished with imprisonment of not less than six months or a fine of not less than Five thousand pesos (P5,000), but not more than Fifty thousand

If the violator is a corporation, organization or any similar entity, the officials thereof directly involved shall be liable therefor.

service of sentence without further deportation proceedings. If the violator is an alien or a foreigner, he shall be deported immediately after

permit to operate, franchise and other similar privileges granted to any business entity that fails to abide by the provisions of the Act and these Regulations. Upon filing of an appropriate complaint, and after due notice and hearing, the proper authorities may also cause the cancellation or revocation of the business permit,

SECTION 11. SEPARABILITY CLAUSE. If any portion or provision of these Regulations is declared unlawful, the remainder of these Regulations or any provision not affected thereby shall remain in force and effect. SECTION 12. REPEALING CLAUSE.

provisions of these Regulations are hereby repealed or modified accordingly. All revenue regulations and other revenue issuances or parts thereof inconsistent with the

SECTION 13. EFFECTIVITY

Gazette or in any two newspapers of general circulation, whichever comes earlier. These Regulations shall take effect fifteen (15) days after publication in the Official

CARLOS G. DOMINGUEZ III Secretary of Finance AM

Recommending Approval:

007930 aealw

H-2 Commissioner of Internal Revenue CAESAR R. DULAY 004065