Clarifications on the tax privileges of senior citizens

This Circular was issued to clarify the issues commonly asked by senior citizens and business establishments regarding the implementation of tax privileges of senior citizens under Republic Act No. (RA) 9994, otherwise known as the Expanded Senior Citizens Act of 2010.

The highlights of some of the issues and clarifications discussed in the Circular are s follows:

On the coverage of 20% discount to senior citizens

1. If a group composed of senior citizens and non-seniors dines in a restaurant, the 20% discount and exemption from value-added tax (VAT) shall be computed as follows:

Total billings (exclusive of VAT)/ No. of customers less 12% VAT x 20% = senior citizen discount

The formula will apply if no “individualized” food item can be ordered or if the transaction with the senior citizen is not processed

separately.

2. Condiments and side products purchased by senior citizens from restaurants are covered by the senior citizen discount and VAT exemption.

3. The discount granted to senior citizens should not be less than 20%. No fixed, maximum amount or cap that will limit the discount below the rate of 20% may be granted to senior citizens. The 20% discount shall be given to goods purchased by senior citizens based on the selling price exclusive of VAT.

4. The 20% discount and VAT exemption shall apply to set meals limited to single service meal with beverage. In case the set meal is not limited to a single-serving meal and is shared with non-senior citizens, the value of the food purchase attributable to the senior citizen may be computed in accordance with the above formula.

5. The 20% discount shall apply to dine-in, take-out and take-home orders (excluding bulk orders) as long as it is the senior citizen himself/herself who is present and personally ordering and can show a valid senior citizen ID card.

6. For a group of diners composed of senior citizens ordering group meals or food items for sharing, each senior citizen with valid senior citizen’s ID is entitled to the 20% discount and VAT exemption. In case not all senior citizens have valid senior citizen’s ID, the value of food purchase attributable to senior citizens with senior citizen’s ID card shall be computed in accordance with the above formula. Bulk orders or pre-contracted or pre-arranged group meals or packages including set orders primarily marketed for children are not entitled to 20% discount and VAT exemption.

7. Pasalubong food items that are single-serving/solo meal for the personal and exclusive consumption of senior citizens are entitled to the 20% discount and VAT exemption. However, other pasalubong food items (e.g., box of biscocho, bottles or jars of ginamos, etc.) not for personal use and exclusive consumption of senior citizens are not entitled to 20% discount.

8. Called-in or phoned-in orders are entitled to 20% discount and VAT exemption subject to condition that the senior citizen ID card number must be given while making the order over the telephone and presented upon delivery for verification. In case of called-in or phoned-in orders of group meals, the food establishment must determine the number of senior citizens in the group and the 20% discount shall be computed based on the value of the food attributable to the qualified senior citizens.

9. Purchase of cigars and cigarettes is not entitled to 20% discount. Alcoholic beverages are not subject to 20% discount and VAT exemption if purchased in bulk, in buckets or in cases. However, if served as a single serving drink, its purchase by the senior citizen is entitled to 20% discount and VAT exemption.

10.The exemption of senior citizens does not cover other indirect taxes. Thus, in case of business establishments that are not subject to VAT but to percentage tax, they are not exempt from paying the percentage tax on their purchase of goods or services, which are otherwise exempt from VAT. In such a case, the discount must be on the total cost of the goods or services charged by the seller of the tax.

On entitlement to 5% special discount of senior citizens on their purchase of prime commodities and basic necessities

Senior citizens’ purchases of basic necessities and prime commodities for their personal and exclusive consumption and/or enjoyment are entitled to 5% discount subject to the P1,300 maximum purchase per week. The 5% special discount covers powdered, liquid, bar laundry and detergent soap but excludes toiletries such as toothpaste, bath soap and tissue paper.

On the tax treatment of senior citizen’s discount and VAT exemption by establishments

Establishments using point-of-sale/cash register machine (POS/CRM) are not required to apply for new accreditation if the system will be changed to comply with the Bureau of Internal Revenue (BIR) requirements on the grant of 20% discount and VAT exemption of senior citizens.

In the machine tape to be generated by the POS or CRM, the exempt sale to senior citizens should be segregated from the taxable sale. If the POS or CRM is incapable of segregation, they should be re-programmed to comply with the requirement. In the meantime, a manual invoice/receipt shall be issued. The seller of qualified goods or services may opt to issue a separate invoice/receipt on its sale to senior citizens. The separate invoice/ receipt will reflect the amount of discount and the total amount payable.

The word “VAT Exempt Sale” must be written or printed prominently on the face of the invoice/receipt. If the merchandise/service sold under a single transaction comprises of a sale to a senior citizen and a sale to a non-senior citizen, the seller may issue one invoice/receipt for the entire transaction providing for a proper breakdown of the exempt sale and the taxable sale. The invoice must properly reflect the discount on the exempt sale. The VAT due on the taxable sale must be separately billed in the invoice/receipt.

The income statement of the seller must reflect the discount not as a reduction of sales to arrive at net sales, but as a deduction from its gross income. Thus, the 20% senior citizen discount shall be treated as a necessary and ordinary expense duly deductible from the gross income, provided that the seller does not opt for optional standard deduction during the taxable quarter/year.

As a VAT-exempt transaction, the input tax attributable to the exempt sale to senior citizens shall not be allowed as an input tax credit but must be treated as a cost or an expense account by the seller.

Moreover, the business establishment giving sales discounts to qualified senior citizens is required to keep a separate and accurate record of sales, which shall include the name of the senior citizen-purchaser, Office of Senior Citizens (OSCA) ID, gross sales/receipts, sales discounts granted, dates of transactions and invoice/OR number for every sale transaction to senior citizens.

(Revenue Memorandum Circular No. 38-2012, August 3, 2012)

Tax Brief - September 2012

Punongbayan and Araullo