The Foster Care Act: Galvanizing support through tax incentives

BY ORDINARY human standards, loss, rejection or abuse is a lamentable experience. From a child’s perspective, however, loss, denial, or neglect of parental care is a magnified tragedy -- an incomprehensible reality that leaves such tender souls scarred for life.

Recognizing the inequities of life, Republic Act (RA) No. 10165, otherwise known as the Foster Care Act of 2012, was penned into law to promote and institutionalize foster care in the Philippines. The resonating wisdom behind the policy is to encourage the care and rearing of abandoned, neglected or abused children by substitute families as an alternative to traditional social welfare institutions. While state agencies have been established to provide sanctuary for orphaned or neglected children, developmental rubrics in child care point to the exigencies of a healthy family environment. More compelling than material support is the need to engage in meaningful human interactions throughout the child’s developmental stages of growth.

Foster care refers to substituted parental care given to a child by a foster parent or a foster family. Unlike adoption, foster care seeks to provide temporary parental care to a child without necessarily establishing any legal ties or binding relations to a person or entity. With the end in view of returning the child to his/her biological family or ultimately finding him/her an adoptive family, foster care offers an immediate resolution to addressing imperative needs of the child sans the drawn-out processes of adoption.

As a planned social intervention, its policy implementation is governed by a collaborative interagency linkage between Department of Social Welfare and Development (DSWD) agencies, Local Government Units (LGUs) and the Local Council for the Protection of Children (LCPC).

To qualify as foster parent or foster family, interested persons or entities must be eligible to adopt under the Domestic or Inter-Country Adoption laws (RA 8552 and RA 8043).

In furtherance of its objectives, the Foster Care Act extends tax incentives to persons and entities who would participate in foster care programs. Encouraging alternative families to take in neglected or abused children, the BIR issued implementing guidelines and procedures (Revenue Memorandum Circular 41-2013, dated April 17, 2013) for availing the incentives, subject to submission of the following prerequisites:

• Legal documents pertaining to the capacity of applicants to act as foster parent and family;

• Documents pertaining to background checks of applicants;

• Case study on the foster family/applicant; and

• Documentary proof showing the foster family/applicant to have attended trainings and seminars to enhance and build their skills as foster parents.

Once the requirements are completed, and thereafter with the issuance of a Foster Family Care License, the foster parents or family is entitled to the following tax incentives:

1. Additional Exemptions for Dependents (Section 23.2, Rule 23)

Under Section 35(B) of the National Internal Revenue Code of 1997 (NIRC), the definition of the term "dependent" has been expanded and amended to include a foster child." By implication, a foster parent shall be allowed an additional exemption of P25,000 for each qualified dependent, including a foster child, so long as the total number of dependents shall not exceed four. However, the additional exemption shall only be allowed if the period of foster care is at least a continuous period of one taxable year. Further, in availing the exemption, only one foster parent can treat the foster child as a dependent for a particular taxable year.

2. Incentives to Agencies Licensed and Accredited under the Foster Care Program (Rule 24)

In promoting social welfare, income derived by licensed and accredited agencies shall be exempt from income tax (under Section 30 of the NIRC, as implemented by Revenue Regulation No. 13-98). Said agencies can also apply for qualification as donee institutions.

3. Incentives to Donors (Rule 25)

Any contributions, donations or gifts actually paid to the licensed and accredited agencies under the Foster Care Program shall be considered allowable deductions from their gross income, to the extent of the amount donated to the agencies (Section 34[H] of the NIRC). As the gifts or donation are made in favor of a social welfare institution, the Donors shall also be exempt from Donor’s Tax (under Section 101 of the NIRC), for so long as not more than 30% of the amount of donations shall be spent for administrative expenses.

Looking beyond tax incentives and privileges, the Foster Care Program is a humanization of the law. It is more than just a welfare package in government’s agenda or a tax shelter for the scheming payer. Essentially, it is an invitation for committed action against a perverse reality -- the degradation of children. To those who truly embrace its bidding, the rewards are far beyond immeasurable.


The author is a manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Readers may call 845-2728 or e-mail the author at theresa.redencion.s.san.digeo@ph.pwc.com for questions or feedback.

Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.

source:  Businessworld