#AskTheTaxWhiz: Are OFWs required to file income tax returns?

Dear Mr. Tax Whiz,

I have been trying to catch you in public seminars or events featuring the Tax Whiz but most of the time it has a registration fee which I cannot afford. When my friend shared your #AskTheTaxWhiz article via Rappler, I tried my luck by sending my tax questions.

My questions are actually all related to my family and I hope you can publish the answers as it may also help others who are confused like us:

1. My father is an OFW (overseas Filipino worker) in Dubai. Ever since he worked there, he has not filed any income tax return (ITR) with the Bureau of Internal Revenue (BIR). Somebody told me that even if he is exempted from paying income tax here, he is sill required to file ITR as a citizen. Is that correct? How about travel tax and other airport fees? Where can we claim or apply for the tax exemptions of OFWs?
2. My mother is selling bakery ingredients such as flour, sugar, cocoa, raisins, etc. She said that her suppliers issue a separate non-VAT (value added tax) receipt for raisins. Is this correct? Is there any enumeration or guidelines for VAT-exempt transactions?
3. My younger brother won in an international football competition. He received a cash prize and a medal. Is it subject to tax? My brother is still in college and he has no TIN (tax identifification number) yet. We are afraid that this small recognition may cause us problems with BIR.
4. And I’m curious: If I win in the lotto, will it also be subject to tax?

We honestly don’t know what to do. We tried calling the BIR office but they don’t seem enthusiastic to answer our questions, or they don’t know the answers, too.

OFW Kid

 

Dear OFW Kid,

Thank you for your courage and interest to know the answers to your tax questions. 

As I always say, I honestly believe that there are more taxpayers who are willing to pay the right taxes only if they understood and knew how.

Your letter to me is proof of this. Our government, specifically BIR, should really find ways to simplify the process and to reach out to more taxpayers who are willing to give their fair contributions, but are just at a loss on how to do it.

Anyway, here are the brief but straightforward answers to your tax questions:

1. No. OFWs are not required to file ITR as long as they don’t have registered business or other sources of income here in the Philippines. However, they must be duly registered with the Philippine Overseas Employment Administration (POEA) with a valid Overseas Employment Certificate (OEC) to claim tax exemptions such as income tax, documentary stamp tax (DST) on their remittances, and travel tax, including airport fees.

Section 23 of the tax code states that an OFW’s income from abroad or income arising out of his overseas employment is exempt from income tax.

Section 35 of Republic Act No. 8042, otherwise known as the “Migrant Workers and Overseas Filipinos Act of 1995,” as amended by Section 22 of Republic Act No. 10022, provides that all migrant workers shall be exempt from the payment of travel tax and airport-fee upon proper showing of proof entitlement (like OEC) issued by the POEA.

2. Suppliers may issue a single invoice/receipt involving VAT and non-VAT transactions provided that the invoice or receipt shall clearly indicate the breakdown. Section 109 of the tax code provides the VAT-exempt transactions:

• Sale or importation of agricultural and marine food products in their original state; livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefore
• Sale or importation of fertilizers, seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the  manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals, and other animals considered as pets)

3. No. Please celebrate the victory of your brother. No need to worry about BIR or getting a TIN. Section 32  of the tax code provides that certain prizes and awards will not be included in gross income and shall be exempt from taxation. This pertains to:

• Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement but only if:
• the recipient was selected without any action on his part to enter the contest or proceeding, and
• the recipient is not required to render substantial future services as a condition to receiving the prize or award; and
• Prizes and awards in sports competition – all prizes and awards granted to athletes in local and international sports competitions and tournaments, whether held in the Philippines or abroad and sanctioned by their national sports association.

4. Lastly, if you win in the lotto or sweepstakes, your winnings will be exempt from taxes. I hope you win!

For more information about our advocacy programs, visit www.acg.ph or call us at (+63 2) 622-7720.

May you enjoy a tax-free lifestyle!

Mr. Tax Whiz

Got a question about taxes? #AskTheTaxWhiz! Tweet @rapplerdotcom or email us at business@rappler.com. – Rappler.com

 

Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon’s tax handbook,Got a Question About Taxes? Ask the Tax Whiz! is now available in bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at consult@acg.ph.