ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Exam  Weeks 16 - 17

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-2001: PREFERENTIAL TAXATION 1

I – Senior Citizens Law and Magna Carta for Disabled Persons
Senior Citizens Persons With Disabilities (PWDs)
a. Definition of Senior citizen or elderly refers to any Filipino A person with disability, whether minor or of legal
terms who is a resident of the Philippines, and who age, and who is a Filipino citizen, who may or may
is 60 years old and above. not be related to his benefactor and who is living
with and dependent upon such benefactor for
It may apply to senior citizens with “dual his/her chief support shall qualify as a dependent
citizenship” status provided they prove their (Section 2 d, Revenue Regulations No. 1-2009).
Filipino citizenship and have at least 6
months residency in the Philippines. Person with disability shall refer to an individual
suffering from restriction or different abilities, as
a result of mental, physical or sensory impairment
to perform activity in a manner or within the range
considered normal for human being (Section 2 b,
Revenue Regulations No. 1-2009).
b. Exemptions and If the returnable income of a Senior Citizen is If the returnable income of a PWD is in the
discounts in the nature of compensation income but he nature of compensation income but he qualifies
qualifies as a minimum wage earner, he shall as a minimum wage earner, he shall be exempt
be exempt from income tax on the said from income tax on the said compensation. He
compensation. He is also exempted from is also exempted from income tax if his taxable
income tax if his taxable income does not income does not exceed his personal
exceed his personal exemptions. exemptions.

All establishments, supplying certain goods

and services for their exclusive use and All establishments, supplying certain goods and
enjoyment or availment, shall give a discount services for their exclusive use and enjoyment or
of 20%. availment, shall give a discount of 20%.

The monthly utilization of water and

electricity by the Senior Citizen supplied by PWDs are not entitled to the 5% discount on
public utilities will be subject to a 5% monthly utilization of water and electricity.
discount .
1) Provided, That the individual meters for
the foregoing utilities are registered in
the name of the senior citizen residing
therein:
2) Provided, further, That the monthly
consumption does not exceed one
hundred kilowatt hours (100 kWh) of
electricity and thirty cubic meters (30
m3) of water:
3) Provided, furthermore, That the privilege
is granted per household regardless of Not provided for PWD Center
the number of senior citizens residing
therein.

50% discount for electricity, water and

telephone consumption if consumed by a
Senior Citizen Center administered by the
Government or domestic NGOs organized
and operated primarily for the purpose of Sale of any goods and services to PWDS shall be
promoting the well-being of abandoned, exempt from the value-added tax (e.g.
neglected, unattached or homeless Senior medicines, professional fees of attending
Citizens physicians and licensed health workers, medical
and dental services, actual fare for land
Sale of any goods and services to Senior transportation travel as well as air transport
Citizens shall be exempt from the value- services and sea shipping vessels, utilization of
added tax (e.g. medicines, professional fees services in hotels and similar lodging places,
of attending physicians and licensed health restaurants and recreation centers, admission
workers, medical and dental services, actual fees charged by theatres, cinema houses, etc.
fare for land transportation travel as well as funeral and burial services for the death of
air transport services and sea shipping PWD).
vessels, utilization of services in hotels and
similar lodging places, restaurants and
recreation centers, admission fees charged
by theatres, cinema houses, etc. funeral and
burial services for the death of Senior
Citizen).

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-2001
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c. Only one discount A senior citizen who is also a PWD can claim A PWD who is also a Senior Citizen can claim
only one discount. only one discount.
d. Higher discount In the purchase of goods and services which In the purchase of goods and services which
may be availed have promotional discount, the senior citizen have promotional discount, the senior citizen or
or PWD can avail of the promotional discount PWD can avail of the promotional discount or the
or the senior citizen/PWD discount, whichever senior citizen/PWD discount, whichever is higher.
is higher.

e. Treatment of Only the actual amount of the discount Only the actual amount of the discount granted
discount for granted or a sales discount not less than the or a sales discount not less than the statutory
income tax and statutory rate, whichever is higher, based on rate, whichever is higher, based on the gross
VAT purposes the gross selling price can be deducted from selling price can be deducted from the gross
the gross income, net of value-added tax, if income, net of value-added tax, if applicable, for
applicable, for income tax purposes, and from income tax purposes, and from gross sales or
gross sales or gross receipts of the business gross receipts of the business enterprise
enterprise concerned, for VAT or other concerned, for VAT or other percentage tax
percentage tax purposes. purposes.
f. VAT-exempt sale Medicines, including influenza and Medicines, including influenza and pneumococcal
of goods with pneumococcal vaccines; vaccines;
corresponding
discount Goods are limited to basic necessities (rice; Goods are limited to basic necessities (rice; corn;
corn; bread excluding pastries and cakes; bread excluding pastries and cakes; fresh, dried
fresh, dried and canned fish; pork, beef and and canned fish; pork, beef and poultry meat;
poultry meat; eggs; fresh and processed eggs; fresh and processed milk; vegetables;
milk; vegetables; coffee and creamer; sugar; coffee and creamer; sugar; cooking oil; salt;
cooking oil; salt; soap; firewood; charcoal soap; firewood; charcoal and candles.)
and candles.)
Goods are limited to prime commodities (fresh
Goods are limited to prime commodities fruits; flour; dried, processed and canned pork,
(fresh fruits; flour; dried, processed and beef and poultry meat; canned sardines and
canned pork, beef and poultry meat; canned tuna; noodles; onions; garlic; geriatric diapers;
sardines and tuna; noodles; onions; garlic; herbicides; poultry, swine and cattle feeds;
geriatric diapers; herbicides; poultry, swine veterinary products for poultry, swine and cattle;
and cattle feeds; veterinary products for nipa shingles, plyboard and construction nails;
poultry, swine and cattle; nipa shingles, batteries; electrical supplies and light bulbs and
plyboard and construction nails; batteries; steel wire.)
electrical supplies and light bulbs and steel
wire.)
g. VAT-exempt sale Professional fees of attending physicians; Professional fees of attending physicians;
of services with
corresponding Professional fees of licensed professional
discount health workers (not mentioned for PWDs);

On medical and dental services, diagnostic On medical and dental services, diagnostic and
and laboratory fees; laboratory fees;

Actual fare for land transportation in public Actual fare for land transportation in public utility
utility buses, jeepneys, taxis, AUVs, shuttle buses, jeepneys, taxis, AUVs, shuttle services
services and public railways, including LRT, and public railways, including LRT, MRT and
MRT and PNR; PNR;

Actual transportation fare for domestic air Actual transportation fare for domestic air
transport services and sea shipping vessels transport services and sea shipping vessels and
and the like; the like;

On the utilization of services in hotels and On the utilization of services in hotels and similar
similar lodging establishments, restaurants lodging establishments, restaurants and
and recreation centers; recreation centers;

On admission fees charged by theatres,

cinema houses and concert halls, circuses, On admission fees charged by theatres, cinema
carnivals, and other similar places; houses and concert halls, circuses, carnivals, and
other similar places;
Funeral and burial services for death of
Senior Citizen/PWD;
Funeral and burial services for death of Senior
Citizen/PWD;
h. Proof to submit to ID issued by the Office of the Senior Citizen ID issued by the city or municipal mayor or the
avail of the Affairs (OSCA) of the place where the senior barangay captain of the place of residence
exemption and citizen resides: Provided, That the
discount

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identification card issued by the particular

OSCA shall be honored nationwide.
Passport of the PWD
Passport of the senior citizen concerned
Transportation discount fare ID issued by
Other documents that establish that the National Council for the Welfare of Disabled
senior citizen is a citizen of the Republic and Persons (NCWPD)
is at least sixty (60) years of age as further
provided in the
implementing rules and regulations.
i. Tax incentives for Fifteen percent (15%) of the total amount Private entities that employ disabled persons
qualified paid as salaries and wages to senior citizens who meet the required skills or qualifications,
establishments shall be allowed as additional deduction. either as regular employee, apprentice or
selling goods and learner, shall be entitled to an additional
services Conditions for the allowance of deduction: deduction, from their gross income, equivalent to
a. The employment shall have to twenty-five percent (25%) of the total amount
continue for a period of at least six paid as salaries and wages to disabled persons.
(6) months
b. The annual taxable income of the Conditions:
senior citizen does not exceed the a. That such entities present proof as
poverty level certified by the Department of Labor
and Employment that disabled persons
are under their employ:
b. The disabled employee is accredited
with the Department of Labor and
Employment and the Department of
Health as to his disability, skills and
qualifications.
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
net taxable income, equivalent to fifty percent
(50%) of the direct
costs of the improvements or modifications.

Establishments granting sales discount to This does not apply to improvements or

Senior Citizens (promotional discount, the modifications of facilities required under Batas
20% discount, the 5% discount on water and Pambansa Bilang 344.
electric consumption, or the 50% discount on
electricity, water and telephone consumption Establishments granting sales discount to PWD
by Senior Citizen Center) on their sales of (promotional discount, the 20% discount) on
goods and/or service shall be entitled to their sales of goods and/or service shall be
deduct the said sales discounts from their entitled to deduct the said sales discounts from
gross income subject to certain conditions. their gross income subject to certain conditions.
j. Exemption does 20% final withholding tax on certain passive 20% final withholding tax on certain passive
not apply income income

7.5% final withholding tax on interest from a 7.5% final withholding tax on interest from a
depository bank under EFCDS depository bank under EFCDS

10% final withholding on dividends, share in 10% final withholding on dividends, share in the
the net income, etc. net income, etc.

Capital gains tax from sale of shares of stock Capital gains tax from sale of shares of stock not
not traded in the stock exchange traded in the stock exchange

6% capital gains tax on presumed capital gain 6% capital gains tax on presumed capital gain on
on sale of real property classified as capital sale of real property classified as capital asset
asset
VAT or other Percentage Taxes, if he is self-
VAT or other Percentage Taxes, if he is self- employed or engaged in business or practice of
employed or engaged in business or practice profession
of profession

Donor’s Tax Donor’s Tax

Estate Tax Estate Tax

Excise Tax on certain goods Excise Tax on certain goods

Documentary Stamp Tax Documentary Stamp Tax

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II – Special Economic Zone Act

a. Definition of ECOZONES or “Special Economic Zones” (SEZ) shall refer to selected areas with highly developed
ECOZONES or which have the potential to be developed into agri-industrial, industrial, tourist, recreational,
commercial, banking, investment and financial centers whose metes and bounds are fixed or
delimited by Presidential Proclamations.

An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing
zones (EPZ), free trade zones and tourist /recreational centers.

b. Policy and the The State recognizes the indispensable role of the private sector, encourages private enterprise,
Philippine and provides incentives to needed investments.
Economic Zone
Authority (PEZA) The State shall promote the preferential use of Filipino labor, domestic materials and locally
produced goods and adopt measures that help make them competitive.

In pursuance of these policies, the government shall actively encourage, promote, induce and
accelerate a sound and balanced industrial, economic and social development of the country in
order to provide jobs to the people especially those in the rural areas, increase their productivity
and their individual and family income, and thereby improve the level and quality of their living
condition through the establishment, among others, of special economic zones in suitable and
strategic locations in the country and through measures that shall effectively attract legitimate and
productive foreign investments.

c. Registration of Applying and registration of investment with the Board of Investments requires submission of a
investment notarized application indicating the type of projects, how the activity relates to those listed in the
Investment Priorities Plan, the production capacity geared to export, the capital structure of the
enterprise, and the nationality of its investors. In addition, the company must submit a feasibility
report, containing five-year projected financial statements.

d. Fiscal incentives to A. Exemption from Duties and Taxes on Importation of Merchandise

PEZA-registered 1. Importations of Capital Equipment
economic zone 2. Importation of Construction Materials
enterprises 3. Importation of Specialized Office Equipment and Furniture
4. Importation of Specialized Vehicles and Other Transportation Equipment
5. Importation of Professional Instruments and Household Effects

B. Exemption from National and Local Taxes and Licenses

C. Tax Credit for Import Substitution
D. Exemption from Wharfage Dues, Export Tax, Impost or Fee
E. Additional Deduction for Training Expenses
G. Other Incentives under the Code
H. Tax Credit on Domestic Capital Equipment
I. Importation of Breeding Stocks and Genetic Materials
J. Tax Credit on Domestic Breeding Stock and Genetic Materials
K. Additional Deduction for Labor Expense
L. Unrestricted Use of Consigned Equipment
M. Incentives Under the Decree

e. Income Tax Income Tax Holiday

Holiday a. New Registered Pioneer Firms - Six (6) years from commercial operations.
b. New Registered Non-Pioneer Firms - four (4) years from commercial operations.
c. Expanding Firms - Three (3) years from commercial operation of the expansion.

f. Kinds of PEZA- a) Those enjoying income tax holiday (ITH) incentive

registered b) Those that are taxed at 5% of gross income (GIT) incentive
enterprises c) Those that are under or opt to be under the 30% regular corporate income tax
g. Exemption from All PEZA-registered economic zone locator enterprises entitled to any or all 3 fiscal incentives [i.e.
local business ITH incentive, the option to pay the special 5% Tax on Gross Income, in lieu of all national and
taxes of all PEZA- local taxes except real property taxes on land owned by developers (5% GIT incentive) ; and/or
registered tax and duty-free importation of machinery and equipment, raw materials, supplies, spare parts
economic zone and other production inputs] including Logistics Services Enterprises, are exempted from securing
locator enterprises Local Government Unit (LGU) permits. (Sec. 13, R.A. No. 7916 as amended by R.A. No. 8748)
h. PEZA-registered PEZA-registered economic zone enterprises availing of ITH are exempted from payment of all
economic zone local taxes, licenses, imposts and fees, except real estate taxes; provided that these enterprises
enterprises shall also be exempted from payment of real property taxes on machinery and equipment they
availing of ITH acquire for use in their production operations, during the first 3 years use of such machinery and
incentive equipment. (Sec. 23, R.A. No. 7916 as amended by R.A. No. 8748, Art. 78, E.O. No. 226)
i. Income Tax New Registered Pioneer Firms - Six (6) years from commercial operations.
Holiday New Registered Non-Pioneer Firms - Four (4) years from commercial operations.
(ITH) Expanding Firms - Three (3) years from commercial operation of the expansion.

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j. PEZA-registered PEZA-registered enterprises availing of the 5% GIT incentive are exempted from the payment of
enterprises all national and local taxes, except real property tax on land owned by developers. (Sec. 24, R.A.
availing of the 5% No. 7916 as amended by R.A. No. 8748)
GIT incentive
k. Special Income Subject to the Regulations to be issued by the Secretary of Finance, upon the recommendation of
Tax Rate the Commissioner of the Bureau of Internal Revenue, the 5% special income tax on gross income
earned, in lieu of all taxes (except real property tax on land owned by developer), pursuant to
Section 24 of R.A. No. 7916, as amended, shall be directly paid and remitted by registered
ECOZONE enterprises as follows:
a. 3% to the national government;
b. 2% to the Treasurer's Office of the Municipality or City where the ECOZONE registered
enterprise is located. (Section 1, IRR, Omnibus Investment Code; Revenue Regulations No.
1-2000)
In the case the ECOZONE is situated and encompasses the territorial jurisdiction of more than
one (1) city or municipality , the share of each city or municipality from the 2% special tax paid
by ECOZONE enterprises shall be determined in accordance with the implementing PEZA
regulations on the subject.
The Philippine Economic Zone Authority (PEZA) shall issue certification as to the exact share of
the concerned cities or municipalities from the 2% tax allocated under the implementing rules of
PEZA.
l. Gross income For purposes of implementing the tax incentive of registered ECOZONE enterprises, the term
defined for “gross income earned” shall refer to gross sales or gross revenues derived from business activity
ECOZONE within the ECOZONE, net of sales discounts, sales returns and allowances and minus costs of
sales or direct costs but before any deduction is made for administrative, marketing, selling
and/or operating expenses or incidental losses during a given period.
m. Direct costs 1) ECOZONE Export Enterprises, Free Trade Enterprises and Domestic Market Enterprises:
included in the a. Direct salaries, wages or labor expenses
allowable b. Production supervision salaries
deductions to c. Raw materials used in the manufacture of products
arrive at gross d. Decrease in Goods in Process Account (Intermediate goods)
income earned e. Decrease in Finished Goods Account
f. Supplies and fuels used in production
g. Depreciation of machinery and equipment used in production and of that portion of the
building owned or constructed that is used exclusively in the production of goods
h. Rent and utility charges associated with building, equipment and warehouses used in the
production
i. Financing charges associated with fixed assets used in production the amount of which
were not previously capitalized
2) ECOZONE Developer or Operator, Facilities, Utilities and Tourism Enterprises:
a. Direct salaries, wages or labor expenses
b. Service supervision salaries
c. Direct materials, supplies used
d. Depreciation of machinery and equipment used in rendition of registered services and
that portion of the building owned or constructed that is used exclusively in the rendition
of registered services
e. Rent and utility charges for buildings and capital equipment used in the rendition of
registered services
f. Financing charges associated with fixed assets used in registered services of which were
not previously capitalized
n. Quarterly and final Every ECOZONE registered enterprise subject to the 5% special income tax shall file a quarterly
adjustment income tax return within sixty (60) days after the close of each of the first three (3) quarters and
income tax return a final adjustment income tax return covering the entire taxable year, not later than the fifteenth
(15th) days of the fourth month following the close of its taxable year. (Revenue Regulations No.
1-2000)
o. Requirement to Enterprises enjoying fiscal incentives granted by other government agencies, required to file return
file return and pay and pay taxes through eFPS, such as those registered with:
taxes through a) Philippine Economic Zone Authority (PEZA);
eFPS b) Board of Investments (BOI;
c) various zone authorities;
d) Cagayan Special Economic Zone Authority;
e) Export Development Council;
f) Tourism Infrastructure and Enterprise Zone Authority; and
g) PHIVIDEC Industrial Authority. (Revenue Regulations No. 1-2010)
p. PEZA-registered PEZA-registered entities currently under or opting to be under the 30% regular corporate income
entities currently tax and Logistics Services Enterprises are also covered by the exemption.
under or opting to
be under the 30%
regular corporate
income tax

END

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