Incentives for the disabled

Written by Joel Roy C. Navarro, on 19 March 2009

Republic Act No. (RA) 7277, otherwise known as the "Magna Carta for Disabled Persons," grants to such persons various privileges and incentives, generally in the form of special discounts on purchases of certain goods and services.

The term, "disabled persons," is defined under the law as referring to persons who are suffering from restriction or different abilities in performing an activity in a manner or within the range considered normal for human being due to mental, physical or sensory impairment.

In 2007, RA 7277 was amended by RA 9442, which granted disabled persons additional incentives and privileges generally similar to the incentives and privileges granted to senior citizens under the Expanded Senior Citizens Act of 2003.

Such additional privileges include a special discount of at least 20% on purchases of certain goods and services, educational assistance and allocated special lanes in all private and government establishments.

The 20% special discount applies to purchases of goods and services for the exclusive use or enjoyment of the disabled person from the following establishments:

  • hotels and similar lodging establishments and restaurants;
  • sports and recreation centers;
  • theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement;
  • all drugstores regarding purchase of medicines;
  • medical and dental privileges in government and private facilities, such as — but not limited to — diagnostic and laboratory fees;
  • domestic air and sea transportation, based on the actual fare, except promotional rates; and
  • transportation privileges in bus and public railway fares.
The disabled person availing of the special discount is required to present the relevant documents establishing his/her identify and entitlement to the incentive such as:
  • an identification card issued by the city or municipal mayor or the barangay captain of the place where the disabled person resides; or
  • transportation discount fare identification card issued by the National Council for the Welfare of Disabled Persons; or
  • a passport.
However, a disabled person is not allowed to claim a discount higher than what may be granted by the establishment under the law or in combination with other discount programs. In other words, a disabled person who is at the same time a senior citizen cannot claim two discounts of 20%, or a total of 40%, on a particular transaction. In this situation, the disabled senior citizen can avail of a maximum special discount of 20%.

On the part of the establishments giving the discount, RA 9442 allows them to claim the discount given as a deduction from their gross income for income tax purposes. Such treatment was further clarified in Revenue Regulations (RR) No. 1-2009, recently issued by the Department of Finance, which provides that sales discounts granted to disabled persons shall be deducted from the seller’s gross income after deducting the cost of goods sold or the cost of service.

Thus, based on the wordings of RA 9442 and RR 1-2009, it appears that the special discounts given to disabled persons are treated as part of operating expenses, contrary to the generally accepted accounting treatment of sales discounts as deduction from gross sales or receipts and not from gross income. Effectively, under this treatment, the special sales discount is deemed included in the computation of the seller’s gross income

On the other hand, for purposes of computing the seller’s value added tax or percentage tax liability, both RA 9442 and RR 1-2009 treat the 20% special discount as a deduction from gross sales or receipts.

On the surface, deducting the special discount from gross income does not seem to have any effect on the income tax liability of the seller. However, for a taxpayer paying the 2% minimum corporate income tax (MCIT), such treatment may not be fair and equitable since the MCIT is computed based on the taxpayer’s gross income. Thus, if the special discount is treated as a deduction from gross income and not from sales, such treatment effectively deprives the taxpayer of the tax deduction benefit it would have otherwise been entitled to, were such special discount allowed as deduction from gross sales or receipts.

Given that discounts granted to disabled persons are also mandated by law, can establishments really raise a howl that they are deprived of just compensation if such discounts are merely treated as deductible expense for income tax purposes and not as tax credit?

I guess this is a separate area that law-makers should look at if they want to maintain a sound tax system in our country.

In the meantime, establishments granting discounts to persons with disability have no choice but to follow what is written in the law.

On the lighter side, they can simply consider the discounts to disabled persons as an act of kindness to those who are in need. After all, as Mark Twain once said, "Kindness is the only language which the deaf can hear and the blind can see."