Easing the burden through Bayanihan II’s tax breaks

It has been over six months of quarantine and the fight against this pandemic has been challenging. Coronavirus disease 2019, or COVID-19, is an unusual enemy that does not allow us to fight back head-on or face-to-face. It is the type of enemy that makes us hide and stay at home if we want to win the battle. Nonetheless, I believe that resilience is inherent among us Filipinos, with all the difficulties we may have probably experienced in our lives.

Our government is no different, showing its resilience in coming up with measures to combat the impact of COVID-19. Recently, Republic Act No. 11494, An Act Providing for COVID-19 Response and Recovery Interventions and Providing Mechanisms to Accelerate the Recovery and Bolster the Resiliency of the Philippine Economy, Providing Funds Therefor, and for Other Purposes, has been passed into law. This Act is also known as Bayanihan II.

As suggested in the term “Bayanihan,” the law aims to reduce the adverse impact of COVID-19 on the socio-economic well-being of Filipinos through the provision of assistance, subsidies, and other forms of relief. The new law also intends to mitigate the economic cost and losses stemming from the pandemic.

For taxpayers, in particular, under the Bayanihan II, the President is authorized to exercise powers to undertake and implement COVID-19 response and recovery interventions that relate to the items below.

TAX EXEMPTION OF BENEFITS FOR HEALTH WORKERS
There is a provision of a COVID-19 special risk allowance for all public and private health workers directly catering to or in contact with COVID-19 patients for every month that they are serving during the state of national emergency as declared by the President. This special risk allowance shall be exempt from income tax.

Further, another provision refers to the compensation to public and private health workers who have contracted COVID-19 in the line of duty, upon submission of the required documents to support claims. There are prescribed amounts such as P1,000,000 in case of death, P100,000 in case of sickness, for a severe or critical case, and P15,000 in case of sickness, for a mild or moderate case. These compensations shall be given to the health workers while in the line of duty or while fighting during the state of national emergency as declared by the President, and the benefits are tax-exempt.

TAX EXEMPTION ON IDENTIFIED EQUIPMENT
During the effectivity of the Bayanihan II Act, the exemption from import duties, taxes, and other fees for manufacture or importation of critical equipment or essential goods will be determined by the Bureau of Customs and the Bureau of Internal Revenue.

Critical products, equipment, supplies, or essential goods include personal protective equipment, such as gloves, gowns, masks, laboratory and medical equipment, medical supplies, tools, consumables, and equipment for waste segregation, among others.

TAX EXEMPTION OF RETIREMENT BENEFITS
It will be noted that during this time of recession, retirements have been one of the more common consequences. In Bayanihan II, retirement benefits received by officials and employees of private firms, whether individual or corporate, from June 5 to Dec. 31, 2020 are excluded from gross income and exempt from taxation.

Provided that any re-employment of such official or employee in the same firm, within the succeeding twelve-month period, is considered proof of non-retirement and shall subject the benefits received to appropriate taxes.

NOLCO AT FIVE YEARS
Companies which suffered losses will also be given a longer time to recover, as the net operating loss of the business or enterprise for the taxable years 2020 and 2021 may be carried over as a deduction from gross income for the next five consecutive years, instead of three years, immediately following the year of such loss. Thus, there will be two more years added to such companies to carry over the net operating loss as a deductible expense in determining their income tax due in the succeeding years.

Other tax provisions in Bayanihan II relate to the exemption from documentary stamp tax of certain loan term extensions or restructuring, exemption from import duties and taxes, including donor’s tax, of equipment appropriate for use in schools, repeal of initial public offering tax under Section 127 (B) of the 1997 Tax Code, as amended, and moving of statutory deadlines for the filing of document and payment of taxes, fees, and other charges required by law.

There has been feedback that the implementing rules could be coming out soon. At any rate, it is a welcome development that tax breaks are being provided by the government during this pandemic to help taxpayers recover from the economic adversity. Hopefully, these tax breaks will somehow ease the burden and help keep taxpayers resilient.

It might further ease our burden realizing that there is One who is a much greater Invisible Being, who will embrace us whatever the circumstances. Let’s keep the faith!

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Olivier D. Aznar is a partner and head of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.