Tax Incentives for Employers and Donors under RA 7277

Legal basis and incorporated rules

Section 1 provides that the regulations are promulgated pursuant to Section 245 in relation to Sections 29(a) and (h), 94, and 103(u) of the National Internal Revenue Code to implement Section 8, Chapter I, Title II and Section 42, Title IV of Republic Act No. 7277.
Section 1 anchors employer incentives on rules tied to Section 29 of the NIRC.
Section 1 anchors donation incentives on rules tied to Section 94 and Section 29(h) of the NIRC.
Section 1 ties foreign donations to Section 105 of the Tariff and Customs Code of the Philippines (as amended), Section 103 of the NIRC (as amended), and other relevant laws and international agreements.

Defined terms for the program

Act means the Magna Carta of the Disabled Persons.
Disabled persons are those with restriction or different abilities resulting from mental, physical, or sensory impairment that affects performance of activity within the range considered normal for a human being.
Reasonable Accommodation includes:
- improvement of existing facilities used by employees so they are readily accessible and usable by disabled persons; and
- modification of work schedules, reassignment to a vacant position, acquisition or modification of examinations, training materials or company policies/rules/regulations, provision of auxiliary aids and services, and other similar accommodations.
Qualified individual with a disability means an individual with a disability who, with or without reasonable accommodations, can perform the essential functions of the employment position held or desired.
Government agencies mean agencies of national, local, and provincial government, including government-owned or controlled corporations.
Organization of disabled persons means a non-stock, non-profit organization duly registered with the Securities and Exchange Commission, qualified by the Bureau of Internal Revenue as a tax-exempt organization, with no part of net income inuring to other private individuals, governed by trustees who receive no compensation, and devoting all income (gifts, donations, subsidies, or other philanthropy) to social welfare purposes for disabled persons.

Employer incentives: deductions and conditions

Private entities that employ qualified disabled persons as regular employee, apprentice, or learner are entitled to an additional deduction from gross income equal to 25% of the total amount paid as salaries/wages to disabled persons.
The 25% additional deduction is allowed over and above the total allowable ordinary and necessary business deductions for salaries and wages under Section 29 of the NIRC.
The 25% additional deduction requires presentation of:
- proof certified by the Department of Labor and Employment (DOLE) that qualified disabled persons are under employ during the taxable year, stating full name, status, address, and TIN of each employee; and
- certification from DOLE and the Department of Health (DOH) as to the disability, skills, and qualifications of the disabled person/s employed by the entity; and
- evidence of actual payment of salaries and wages to the employed disabled person and withholding tax, if any.
Private entities that improve or modify physical facilities to provide reasonable accommodation for disabled persons are entitled to an additional deduction from net taxable income equal to 50% of the direct costs of the improvements/modifications.
The 50% additional deduction is allowed over and above total allowable ordinary and necessary business deductions for improvements/modifications actually incurred during the taxable year under Section 29 of the NIRC.
The 50% additional deduction does not apply to improvements/modifications of facilities required under Batas Pambansa Bilang 344 (enhancing mobility of disabled persons by requiring certain buildings, institutions, establishments and other public utilities to install facilities and other devices).

When deductions and donation tax benefits apply

Employer tax incentives (additional deductions under Section 3) are availed in the taxable year when expenses for salaries and wages and/or expenses for improvement/modification of physical facilities for reasonable accommodation are paid or incurred.
Employer deductions can be taken in a different period if needed to clearly reflect income payment to qualified disabled employees, consistent with Section 39 of the NIRC.
The tax exemption and deductibility of donations by donors are availed by the donor in the taxable year when the donations/contributions are made.

Donation incentives: exemptions, limits, and valuation

Donations, bequests, subsidies, and financial aid to government agencies engaged in rehabilitation of disabled persons and organizations of disabled persons are exempt from donor’s tax pursuant to Section 94(2) and (3) of the NIRC, subject to the condition that not more than 30% of the gifts are used by the donee for administration purposes.
Donations from foreign countries to non-stock, non-profit organizations of disabled persons are exempt from value added tax on importation pursuant to Section 103(a) of the NIRC and other relevant laws and international agreements.
Donations in kind are determined at fair market value/zonal value as of the date the donations are made.
Cash donations are determined solely using the cash receipts and disbursement method of accounting.
Donee organizations of disabled persons issue to donors a certificate of donation showing:
- date of receipt of the donation;
- amount in cash and/or fair market value/zonal value of real property; and
- for personal property, actual cost of acquisition, or if already used, its depreciated or book value at the time of donation.

Donation deductibility rules for donors

The donor’s tax exemption under Section 94(2) is conditioned on the rule that not more than 30% is utilized for administration purposes.
For income tax purposes, donations to government agencies engaged in rehabilitation of disabled persons and to organizations of disabled persons are deductible from gross income, subject to limits of:
- 6% for an individual donor; and
- 3% for a corporate donor,
  of the donor’s taxable business income computed without the benefit of the deduction under Section 29(h)(l) of the NIRC.
Donations to organizations of disabled persons that are registered and accredited/certified as a donee institution by the BIR under BIR–NEDA Regulations No. 1-81 (as amended by Revenue Regulations Nos. 1-82 and 10-92) implementing Section 29(h)(2) of the NIRC (as amended by Batas Pambansa Blg. 45) are deductible in full from the donor’s taxable business income in the year the contributions/donations are made.

Documentary and filing requirements

Employer incentives under Section 3 are availed by private entities by filing the final income tax return for the taxable year when salaries/wages and/or direct-cost expenses for facility improvements/modifications are actually paid or incurred.
The employer return must attach:
- DOLE proof that disabled persons have actually been employed (with required particulars);
- certification from DOLE and DOH certifying disability, skill, and qualification of the employed disabled person;
- evidence of actual payment of salaries/wages and withholding tax, if any;
- a certified schedule/statement of actual expenses (direct cost) incurred/paid for facility improvements/modifications, including examples such as:
  - adaptation of an office equipment/furniture,
  - specialized lift,
  - customized service vehicle adapted to disabled worker,
  - special audio-visual effects for hearing and visually impaired workers,
  - technical assistive devices, special tools, and occupational safety and anti-hazard gadgets;
- certification by the local government building inspector and the National Council for the Welfare of Disabled Persons (NCWDP).
The employer additional deduction in Section 8(A) does not apply to improvements/modifications required under Batas Pambansa Bilang 344.
Donation deductibility claims are made by donors at the time of filing the income tax returns for individuals and corporations as prescribed under the NIRC.
Donors claiming deductions for donations under the Act and under Section 29(h) (as amended by Batas Pambansa Blg. 45) as implemented by BIR–NEDA Regulations No. 1-81 (as amended by Revenue Regulations Nos. 1-82 and 10-82) must submit to the BIR:
- certification of donation by the donee showing date of receipt; and
- the amount/value of the donation:
  - cash donation amount,
  - real property value at the time of donation based on zonal valuation at the time of donation or fair market value per latest Tax Declaration if no established zonal valuation,
  - personal property acquisition cost, or depreciated/book value if already used at the time of donation.
Organizations of disabled persons issue donation certificates in three (3) or four (4) copies within 30 days after receipt of the donation:
- original copy to donor;
- duplicate copy to BIR;
- triplicate copy to donee;
- quadruplicate copy to NEDA for donations to a government agency qualified under the national priority plan.
Organizations of disabled persons must file an annual information return including a report (and, if donations are for projects covered by the national priority plan, furnish NEDA using NEDA Forms 3A, 3B and 3C) on donations received and how donations are utilized, certified by an authorized official, including:
- list of donations received showing names/addresses of donors; amount/market value and other income sources and disposition;
- list of activities/projects with cost and details on where/how donations were utilized;
- list of projects with corresponding costs, amount set aside, and status of fund balances at year end;
- certification that utilization requirements under the regulations have been sufficiently complied with;
- certification that no part of net income inures to the benefit of any private stockholder or individual;
- status of project implementation.
Organizations of disabled persons must file annually an information return together with duly audited financial statements on or before 15th of April, or on or before the 4th month after the end of the taxable period, subject to verification/investigation by authorized BIR revenue officers to determine compliance with qualification and tax-exemption conditions.

Utilization requirements for donations

All donations to government agencies engaged in rehabilitation of disabled persons and for projects—whether or not included in the national priority plan of NEDA for disabled persons—must be used exclusively for their implementation.
All donations to organizations of disabled persons duly registered with the BIR must be used exclusively for rehabilitation and social welfare of disabled persons.
Donation utilization is subject to the limitation that not more than 30% is used for administrative purposes.

Taxability and withholding obligations of organizations

Even with tax-exempt status of a non-stock, non-profit organization of disabled persons, income from activities conducted for profit and income from passive investment are subject to internal revenue taxes under the NIRC, including:
- interest on Philippine currency bank deposits,
- yield or other monetary benefit from deposit substitutes,
- trust fund and similar arrangements,
- royalties,
- prizes (except prizes amounting to P3,000 or less, which are subject to tax under paragraph (a)),
- other winnings except Philippine Charity Sweepstakes winnings,
- and income from dealings in property, real and personal.
Organizations of disabled persons must serve as withholding agents for the government for income payments to individuals subject to withholding tax on compensation and to persons subject to expanded withholding tax under the NIRC and implementing regulations.

Penalties and consequences of violation

Any donee or donor found to have violated any provision of the regulations is disqualified through suspension or cancellation of:
- the Certificate of Registration; and
- the right to receive tax-free donations or the claim for deductibility of donations made.

Corporate structure and governances required

Organizations of disabled persons are governed by trustees who receive no compensation and must devote all income to social welfare purposes for disabled persons, including gifts, donations, subsidies, or other forms of philanthropy.

Repeal, separability, and sunset

No separability, repeal, or sunset rules are established within the regulation.