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Welcome relief: Tax entitlements for solo parents

Mother’s Day is just around the corner, and what better way to celebrate our real-life superheroes than to honor them. On Sunday, May 14, we celebrate the guiding light of our families — our mothers. While some will be commemorating this event with a lavish family dinner, not all families will troop to the restaurants with a complete set of loving parents. According to a recent World Health Organization (WHO) study, the Philippines has about 15 million solo parents. An astonishing 95% or more than 14 million of them are women.

Solo parents give twice as much, even if they seem to be half as capable. They carry a load that was meant to be shared.  Indeed, solo parents must have backbones of steel and hearts of gold.

Recognizing the need to enhance the assistance granted to solo parents, our legislators did a double take on the old Solo Parents’ Welfare Act of 2000 and approved R.A. No. 11861 last year. The new law expanded the benefits to include a 10% discount and exemption from the value-added tax (VAT) on certain essential purchases. The tax benefits cover baby’s milk, food and micronutrient supplements, and sanitary diapers purchased, duly prescribed medicines, vaccines, and other medical supplements purchased. To qualify under the law, the solo parent must (a) have children six (6) years old or younger, and (b) earn less than P250,000.00 annually. To prove their eligibility, the solo parent will need to present their solo parent ID card (SPIC) and booklet to the establishments. Aside from showing that the solo parent earns less than the threshold income per year, the SPIC will also show that names, birth dates and relation to the solo parent of the qualified children.

To implement these tax benefits, the BIR issued Revenue Regulations 1-2023 on Jan. 17, 2023. It prescribes the guidelines to VAT registered establishments giving the 10% discount and applying the VAT exemption on the sale of goods to solo parents.

The regulations emphasize that the discount and VAT exemption will apply only to the purchase of goods for the exclusive use and enjoyment of the qualified solo parent’s children. Hence, for purchases of medicine, vaccines and other medical supplements, a medical prescription issued by an attending physician in the name of the solo parent’s children six years of age or under is necessary.

THE 10% DISCOUNT IS DEDUCTIBLEAll establishments applying the discount and VAT exemption may claim the discount as deduction from gross income for the same taxable year the discount is granted.

The establishment must first report the undiscounted selling price and not the amount of sales net of the discount. In the income statement of the seller, the discount will be reflected, not as a reduction of sales to arrive at net sales, but as deduction from gross income (sales less cost of sales). The 10% discount is treated as an ordinary and necessary expense deductible from the gross income of the seller falling under the category of itemized deductions and can only be claimed if the seller does not opt for the Optional Standard Deduction (OSD) during the taxable quarter/year.

VAT EXEMPT SALESellers are precluded from billing any VAT on the sale of identified goods to qualified solo parents. The input tax attributable to the exempt sale is not allowed as an input tax credit but must be recorded as cost or expense account by the seller.

In summary, the following are the requirements for the discount to be a deductible expense of the seller: (1) Only that portion of gross sales exclusively used, consumed, or enjoyed by the solo parent’s children are eligible for the deductible sales discount; (2) The gross selling price and the sales discount must be separately indicated in the sales invoice issued by the establishment; (3) Only the actual amount of the discount granted or a sales discount not less than the statutory rate of 10%, whichever is higher, can be deducted from gross income, net of VAT for income tax purposes, and from gross sale for VAT or other percentage tax; (4) The seller must record its sales inclusive of the discount granted; (5) The establishment must keep a separate and accurate records of sales including information of the solo parent and the children, (6) The discount is taken as a deduction from gross income in the same year the discount is granted, (7) Only business establishments selling any of the goods enumerated where an actual discount is granted may claim the deduction, and (8) The seller must not claim optional standard deduction during the taxable year.

It is indeed laudable for the government to grant these tax benefits to our real-life superheroes. As Ramon Magsaysay said: “Those who have less in life should have more in law.” Being a solo parent is a journey for the strong. The reality is that even two-income households struggle — more so solo parents, who are the only breadwinners. We cannot help but be in awe as they continue to carry on. Going solo does not mean one has to handle everything alone, because the government protects the welfare of solo parents. Granting tax benefits to them is the government’s way of saying, “You are appreciated. Wear your cape proudly. All that we are or ever hope to be, we owe to our Mama, Mommy and Nanay. To our guiding light, Happy Mother’s Day.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Ira Jennena Bero is an associate from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

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