PERA Law's conundrums: Who are OFWs? Where are they?
And the conundrums that the Bureau of Internal Revenue (BIR) has over implementing the Personal Equity Retirement Account (PERA) Law is defining who the overseas Filipino workers (OFW) are.
BIR Commissioner Kim Henares said she is worried that every one will use the law and declare themselves as OFWs in order to claim tax credits.
That is why BIR officials are having a hard time on defining OFWs or how to document their whereabouts, according to Henares.
“[The] PERA [Law] enables citizens, residents or otherwise to claim tax credit from [BIR]. But how do we determine as to who are qualified to avail these?" she pointed out.
“If we don’t define the nature of OFWs, everyone can declare themselves as OFWs and get a tax break," Henares said.
The PERA Law aims to uplift the quality of life of Filipino workers receiving minimum wage or ordinary income earners, as about 20 percent or some 6.2 million of the country’s labor force is not covered by any type of retirement plan.
The PERA Law should have taken effect on January 1, 2009, but BIR has been slow to issue its implementing order due to its revenue erosion provisions.
Estimates from the Department of Finance (BIR’s mother agency) show revenue losses from the law’s implementation may reach P12 billion for its first year of implementation alone.
According to the current draft of the Revenue Regulation of the PERA Law, an OFW is entitled to a 5-percent tax credit of the actual contribution not more than P200,000 made for a year.
The PERA Law provides that a contributor is entitled to a tax deduction of 5 percent — provided that he invests to a unit investment trust fund, share of stocks of mutual fund, annuity contract, insurance pension products, pre-need pension plans, shares of stock or other securities listed and traded in the local stock exchange, exchange-traded bond, and in government securities.
To qualify for a tax deduction of 5 percent in the case of a Filipino citizen, the investment of a qualified PERA holder shall not exceed P100,000 a year. If married, each spouse may invest up to P100,000 a year.
In the case of an OFW, however, a higher investment cap of P200,000 is imposed every year. If married and both spouses are OFWs, each spouse is entitled to a maximum investment of P200,000 per year to qualify for tax credits.
Early this year, the BIR has already defined the nature of an OFW as it devoted an entire Revenue Regulation for tax treatment.
BIR’s RR 1-2011 defines an OCWs or overseas contract workers, or commonly referred to as OFWs, as those “who are physically present in a foreign country as a consequence of their employment thereat." Their salaries and wages are paid by an employer abroad and are not borne by any entity or person in the Philippines.
It added, however, that to be considered as an OFW, “they must be duly registered as such with the Philippine Overseas Employment Administration [POEA]… with a valid Overseas Employment Certificate [OEC]."
The same regulation also defines seafarers (or sea-based OFWs) as those “Filipino citizens who receive compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade."
To be considered as a sea-based OFW, these people should also be registered as such with the POEA and has a valid OEC and also a valid Seafarers’ Identification Record Book issued by the Maritime Industry Authority.
Latest stock estimates of overseas Filipinos (2009) by the Commission on Filipinos Overseas show that out of the 8,579,786 overseas Filipinos (to include immigrants and irregular migrants), 3,864,068 of them are temporary migrant workers (also referred to as OFWs or OCWs).
These overseas Filipinos are in over 220 countries.
In 2010, 1,123,676 land-based and 347,150 sea-based OFWs — both new-hire and rehired workers — were deployed, says new data from the Philippine Overseas Employment Administration. — William Alzona/OFW Journalism Consortium