BIR Issues Rules on Tax Exemption for Solo Parents

On 17 January 2023, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulation No. 01-2023 on “Implementing the Ten Percent (10%) Discount and the Value-Added Tax (VAT) Exemption under Republic Act (RA) No. 11861 or the ‘Expanded Solo Parents Welfare Act.’”

The BIR emphasized that only solo parents who meet all the following conditions shall qualify for the 10% discount and value-added tax (“VAT”) exemption:

  1. Solo parent has a child/children (as defined in Republic Act [“RA”] No. 11861) with the age of 6 years or under; and
  2. Solo parent is earning less than PHP250,000.00 annually.

The 10% discount and VAT exemption shall apply to a qualified Solo Parent’s purchase of the following goods:

  1. Baby’s milk;
  2. Food supplements and micronutrient supplements;
  3. Sanitary diapers;
  4. Medicines;
  5. Vaccines; and
  6. Other medical supplements.

The list of goods is subject to the guidelines that will be issued by the Department of Health, in coordination with the Food and Drug Administration, the Philippine Health Insurance Corporation, and the Department of Interior and Local Government.

To avail of the 10% discount and VAT exemption on qualified purchases, the solo parent shall present his/her Solo Parent Identification Card (“SPIC”) and Solo Parent Booklet. The SPIC must show that the solo parent earns less than PHP250,000.00 annually and indicate the name/s, birth date/s and relation to the solo parent of the qualified children and/or dependents with the age of 6 years or under.

The BIR also clarified the tax treatment of the discount and VAT exemption granted to solo parents. Specifically, all establishments supplying the list of goods identified in RA No. 11861 may claim the discounts granted to Solo Parents as a tax deduction based on the cost of goods sold. The selling price to be charged by the seller must be net of VAT because the sale of goods identified in RA No. 11861 to qualified solo parents is exempt from VAT.

As such, the amount of sales that must be reported for tax purposes is the undiscounted selling price. The income statement of the seller will then reflect the discount as an itemized deduction from its gross income (sales less cost of sales). However, this form of deduction can only be claimed if the seller does not opt for the Optional Standard Deduction during the taxable quarter/year.

The sale of goods identified in RA No. 11861 to solo parents must also follow the invoicing requirements prescribed under Revenue Regulations No. 16-2005, as amended. Lastly, sellers using a Point of Sale Machine or a Cash Register in lieu of a regular sales invoice must have machine tapes that properly segregate the exempt sales from the taxable sales.

The full text of BIR Revenue Regulation No. 01-2023 can be found here.