PWDs as tax dependents

With less than two months before 2016 comes to an end, employers have started the tax annualization of the withholding taxes of their employees.

Former President Benigno S. C. Aquino III signed Republic Act (RA) 10754 into law, an act expanding the benefits and privileges of persons with disability (PWDs). It is worth noting that this RA provided for the classification of a PWD as a dependent subject to certain qualifications, for purposes of allowing the benefactor the privilege of claiming the P25,000 exemption in computing taxable income.

The law states that employees who are entitled can benefit from the additional P25,000 exemption for PWD dependents. These refer to employees who are caring for and living with a PWD who are within the fourth civil degree of consanguinity or affinity. The PWD can be their parents, siblings or relatives within 4th degree. PWDs regardless of age, who are not gainfully employed and chiefly dependent upon the taxpayer, shall be treated as a qualified dependent. Including the dependent PWD, a maximum of four (4) qualified dependents may be claimed for the additional exemption under the Tax Code.

However, while the RA 10754 is now in effect, the implementing rules and regulations (IRR) have not been promulgated as of writing. Likewise, the Bureau of Internal Revenue (BIR) has not issued any guidelines.

Without the implementing rules and regulations, taxpayers and employers are at a loss as to how they can claim the benefit. Interestingly, the law provides a safety provision that in case of failure of the concerned agencies to promulgate the rules and regulations, it shall not prevent the implementation of this Act upon its effectivity.

With this provision, is it safe to say that the concerned taxpayers may avail of the benefit even in the absence of the IRR, without the fear of being penalized in the future?

Many employees/taxpayers with qualified PWD dependents are now wondering if they can actually avail of the additional exemption. In addition, many employers are also in doubt if the BIR will allow the PWD as dependent. Thus, without the guidelines, questions and difficulties are raised on how this law will be implemented for claiming the additional exemption provided by the new law.

Since it is already in effect, the additional exemption should be available for the calendar year 2016. However, there may be some gaps on the requirements and the documents that the BIR may need to support the additional claim.

Here are some of the procedures the taxpayer may undertake to avail of the benefit:

The employee should apply for registration update by filing BIR Form 2305.

The BIR Form 2305, however, has not been updated to include the PWD as a dependent. Hence, there is an issue as to whether the form may be used for this purpose if the BIR cannot timely revise.

The taxpayer-benefactor should submit documents to support the claim which may include the following:

• Identification Card (ID) of the PWD;
• Certification from the City or Municipal DSWD officer that the PWD is not gainfully employed and is chiefly dependent on the taxpayer-benefactor for support; and
• Proof on the relationship of the taxpayer-benefactor with the PWD, such as relevant birth certificates (law requires PWD must be within the 4th degree of consanguinity or affinity of the benefactor).

With the government's current pursuit of tax reforms, we are still hopeful that the implementing rules and regulations will be released before the year ends. We hope that the above questions and issues can be resolved so that employees who are entitled can benefit from this law.

As we embrace change in our society, let us not put to waste a very significant law that favors taxpayers, especially those who have less in life.

Maricel P. Katigbak is a tax manager of the Tax Advisory and Compliance Division of P&A Grant Thornton

As published in BusinessWorld November 8 2016