In the movies or TV or literature, we have become accustomed to people with extraordinary ability. They defy gravity in red capes, control thunder with enchanted hammers, and so on. We call them “superheroes,” whose mission is to save mankind from evil.

In real life, we also encounter people who accomplish extraordinary things without superpowers. We call them parents. Our parents have been invaluable to us all our lives, being there when we took our first breath, our first bike ride, our first heartbreak, our graduation. However, not all of us are fortunate enough to have both parents guide us through life. Some only have single parents. The path single parents take to raise their children may be different and a bit harder because there is one less person to help.

As such, Congress passed Republic Act (RA) 11861 or the Expanded Solo Parents Welfare Act to further support solo parents in rearing their children. The benefits include discounts and value-added tax (VAT) exemptions on their basic needs.

Thus, the Bureau of Internal Revenue (BIR) released Revenue Regulations (RR) No. 1-2023 to set the guidelines for the tax privileges granted to establishments offering the 10% discount on their sales to solo parents of goods identified under RA 11861; and VAT exemption on the sale of identified goods to solo parents by VAT-registered taxpayers.

PRODUCTS COVERED BY THE INCENTIVE
The products subject to 10% discount and VAT exemption include baby’s milk, food supplements and micronutrient supplements, sanitary diapers, medicine, vaccines, and other medical supplements. These include generic or branded products.

The purchase must be for the exclusive use and enjoyment or availment of the qualified child/children who are not more than six years old. The purchase of medicine, vaccine, and other medical supplements, must be supported by a prescription from the physician.

The incentives apply to a solo parent’s purchases from drug stores, pharmacies, groceries, and similar establishments.

ELIGIBILITY OF SOLO PARENTS FOR INCENTIVES
In order to qualify for tax incentives, the solo parent’s income must not exceed P250,000 per annum. Further, the child or children must be six years of age or under.

The solo parent must present his/her Solo Parent Identification Card (SPIC) and Solo Parent Booklet (SPB) to business establishments when making a purchase. The SPIC and SPB is to be issued by the Solo Parent Office or Solo Parent Division of their city or municipality.

TAX TREATMENT OF THE 10% DISCOUNT
Business establishments are entitled to claim the discounts granted to Solo Parents as deductions in their Income Tax Return (ITR).

As an example, if a VAT-registered grocery store sells milk at a selling price (before discount) of P200, the discount is computed as:

Selling Price (VAT-exempt) — P 200
Less: 10% Discount — 20
Amount Payable by Solo Parent — P 180

In a sale to a qualified solo parent, milk must be VAT exempt. The discount, which is based on the selling price, may be claimed as a deductible against gross income in the year the discount is granted.

Sales reported in the ITR must be the undiscounted selling price, i.e., sales before the discount. Contrary to an ordinary sales discount, however, the solo parent discount must be reported as an expenses, instead of a reduction from sales. As a guide, RR 1-2023 provides the journal entry to record the sale:

Cash — 180
Solo Parent Discount Expense — 20
Sales — 200

The discount will be treated as an ordinary and necessary expense as part of itemized deductions. This means that it cannot be claimed if the seller opts for the Optional Standard Deduction (OSD) during the taxable period.

Further, the following requirements must also be satisfied:

• the gross selling price and the sales discount must be separately indicated in the sales invoice;

• only the actual amount of discount granted or sales discount not less than 10%, whichever is higher, based on the gross selling price can be deducted from the gross income (net of VAT, if applicable) for income tax purposes, and from gross sales, for VAT or other percentage tax purposes;

• the seller must record the sales inclusive of the discount granted;

• the discount can only be allowed as deduction for the same taxable year that it is granted; and

• for each sale, the business establishment giving the sales discount must keep a separate and accurate record of the sales, which is to include the name of the solo parent, SPIC number, name/s of the qualified child/ren, gross sales, sales discount granted, date of transaction, and invoice number.

VAT EXEMPTION
The sale is to be presented under Line Item 18 (Exempt Sales/Receipts) in the Quarterly VAT Return (i.e., BIR Form 2550Q). In addition, the input tax attributable to the exempt sale is not allowed as an input tax credit. Instead, such input tax can be claimed as an expense deduction for income tax purposes.

WHAT’S NEXT FOR SOLO PARENTS?
RR 1-2023 is a welcome development not just for the solo parents but also for their children. The very first people who get to witness their hard work and sacrifices in family building are their children. I can say this because I myself am a child of a solo parent. While my mother is no longer able to benefit from the tax incentives from this expanded law, I am certain she is glad that somehow, the solo parent’s role in the society is being acknowledged and valued.  After all, not all heroes wear capes.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Edmund James E. Opinio is a senior associate at the Client Accounting Services department of Isla Lipana & Co., the Philippine member firm of the PwC network.

+63 (2) 8845-2728

edmund.james.opinio@pwc.com