Letter to an Attorney

Dear Attorney,

I hope this letter finds you well. I am a person with a disability (PWD) and currently employed. I understand that as a PWD, there may be certain tax exemptions or benefits I am entitled to under Philippine law. However, I am unsure about the specific provisions or the process to claim such exemptions.

Could you kindly provide detailed guidance on what tax exemptions or other financial benefits I am allowed to avail myself of as a PWD in employment? Any additional advice on documentation or procedural requirements would also be greatly appreciated.

Thank you for your assistance. I look forward to your expert counsel on this matter.

Sincerely,
A Concerned Employee with a Disability

Tax Exemptions and Benefits for Persons with Disabilities (PWDs) in the Philippines: A Comprehensive Legal Overview

Persons with disabilities (PWDs) in the Philippines are recognized under Republic Act No. 7277, also known as the Magna Carta for Disabled Persons. This law, which was amended by Republic Act No. 9442 and Republic Act No. 10754, establishes the rights and privileges of PWDs, including employment, education, and health benefits. It also outlines various tax exemptions and incentives available to PWDs and their employers. This article will provide a detailed exploration of the tax exemptions that employed PWDs can claim under Philippine law, including relevant examples and documentation requirements.

1. Republic Act No. 7277 and Amendments: Foundation of PWD Rights

Republic Act No. 7277, known as the Magna Carta for Disabled Persons, is the foundational law granting rights and privileges to PWDs in the Philippines. One of the law's critical provisions is the promotion of gainful employment for PWDs, which is supported by various tax incentives. The law was amended by Republic Act No. 9442 in 2007 and Republic Act No. 10754 in 2016 to strengthen these rights, particularly in terms of tax privileges and financial benefits.

The Magna Carta for Disabled Persons grants the following primary rights to PWDs:

Access to education, health services, and employment.
Equal opportunity to participate in all public life areas, including transportation and communication.
Tax exemptions and discounts on essential goods and services.

The amendments to the law emphasize that these benefits are not just limited to goods and services but extend to income tax exemptions and employer incentives.

2. Income Tax Exemptions for Employed PWDs

While the law does not provide a blanket exemption from income tax for all PWDs, it does offer specific benefits that directly reduce their tax burden. These benefits are in line with the general policy of promoting the welfare of PWDs and ensuring that their employment is not hindered by their disabilities.

a. Additional Personal Exemption for Employed PWDs

Under Republic Act No. 10754, an employed PWD, or a taxpayer caring for a qualified PWD dependent, is entitled to an additional personal exemption. This exemption can be claimed on top of the regular personal exemption provided under the National Internal Revenue Code (NIRC).

This personal exemption translates to a reduction in taxable income. The amount allowed is equivalent to the basic additional personal exemption that any taxpayer is entitled to for each qualified dependent. A "dependent" PWD refers to any individual who is incapable of self-support because of a mental or physical disability.

For example, if a taxpayer has a child with a disability or if the taxpayer himself or herself is a PWD, they can claim additional deductions from their gross income, thereby lowering their tax liability. The law defines "PWD dependent" broadly to include children, parents, or any direct relative within the fourth degree of consanguinity or affinity, provided that the dependent PWD is primarily reliant on the taxpayer for support.

b. Exemption from VAT for the Sale of Goods and Services

The law grants VAT exemption to PWDs for the purchase of certain goods and services. While this applies to personal transactions rather than employment income, it is relevant to the overall tax savings a PWD can avail of. The VAT exemption applies to the following:

Purchase of medicines, including over-the-counter and prescribed drugs.
Medical and dental services, including diagnostic and laboratory fees.
Professional fees of attending doctors.
Domestic air and sea travel.
Public railways, skyways, and bus fares.

For a PWD to avail of these VAT exemptions, they must present their PWD identification card issued by the local government unit (LGU) or the National Council on Disability Affairs (NCDA). The benefit extends to essential purchases that directly contribute to the welfare and health of the PWD.

3. Employer Tax Incentives for Hiring PWDs

In addition to personal tax exemptions for PWDs, the law also incentivizes employers to hire PWDs through tax deductions. This aims to promote the inclusion of PWDs in the workforce by providing tax relief to employers who actively employ persons with disabilities.

a. Deductions from Gross Income for Employers

Employers who hire PWDs are entitled to additional deductions from their gross income equivalent to 25% of the total amount of salaries and wages paid to PWD employees. This incentive is particularly beneficial for small and medium enterprises (SMEs) that are looking for ways to reduce their tax liabilities while promoting inclusive hiring practices.

To qualify for this deduction, the following conditions must be met:

The PWD employee must have a valid PWD identification card.
The PWD employee must be engaged in work that matches their skills and qualifications, and the work environment should be conducive to their abilities.
Employers must ensure that the PWD employee is receiving the same employment benefits as other employees in the same position.

b. Tax Deduction for Improvement of Facilities

Employers may also deduct 50% of the direct costs incurred in improving or modifying their work facilities to accommodate PWD employees. This deduction encourages companies to invest in accessible work environments, such as building ramps, installing elevators, or adapting workstations.

For instance, if an employer spends PHP 1 million to renovate office facilities to be PWD-friendly, they can deduct PHP 500,000 from their taxable income. This provision applies to physical and technological adjustments made by employers to accommodate the specific needs of PWD employees.

4. Documentary Requirements and Procedures for Claiming Tax Exemptions

To avail of the tax exemptions and benefits provided under the law, both PWD employees and their employers must adhere to specific documentation and procedural requirements.

a. PWD Identification Card

The PWD ID, issued by the local government unit or the National Council on Disability Affairs (NCDA), is the primary document needed to claim VAT exemptions and income tax benefits. This card must be presented for all VAT-exempt transactions, and its details are required for filing tax returns that claim additional personal exemptions.

b. Filing for Personal Exemption

For PWDs claiming additional personal exemptions, the taxpayer must file the necessary forms with the Bureau of Internal Revenue (BIR) during the annual income tax return filing. This includes attaching the PWD ID of the individual being claimed as a dependent or the taxpayer’s own PWD ID if the taxpayer is the one with the disability.

Employers, on the other hand, are required to keep records of PWD employees and submit these as part of their regular tax filings to claim the deductions for wages and facility improvements.

5. Further Considerations and Legal Precedents

While the law provides several benefits to PWDs, it is essential to note that enforcement and compliance vary across regions and employers. In some cases, PWDs may face challenges in claiming their rightful benefits due to a lack of awareness or misunderstanding of the law. PWD employees are encouraged to be proactive in educating their employers about their rights and the tax incentives available to businesses.

Moreover, legal precedents have underscored the importance of ensuring that PWDs are treated equally in the workplace. Discrimination against PWDs, whether in terms of hiring practices or denial of tax exemptions, can result in legal consequences under the Labor Code and other related laws.

6. Conclusion

In conclusion, the Philippine government has made significant strides in supporting the financial welfare of employed PWDs through tax exemptions and benefits. The additional personal exemption, VAT exemptions, and employer tax incentives all contribute to reducing the financial burdens faced by PWDs. However, to fully benefit from these provisions, PWDs and their employers must be aware of their rights and comply with the necessary documentation and procedures.

Employers, in particular, play a crucial role in promoting the inclusion of PWDs in the workforce by claiming the available tax deductions for hiring PWDs and improving workplace accessibility. The law not only supports the rights of PWDs but also fosters a more inclusive society where persons with disabilities are given equal opportunities to contribute to the economy.

Understanding and properly implementing these tax exemptions will go a long way in ensuring that PWDs are supported in their pursuit of gainful employment and financial independence.