Tax incentive for free legal service
By Aziza Hannah A. Bacay on September 29,2022.
“FREE access to the courts and quasi-judicial bodies and adequate legal assistance shall not be denied to any person by reason of poverty.” – Section 11, Article III (Bill of Rights) of the 1987 Constitution of the Republic of the Philippines.
On Feb. 10, 2009, the Supreme Court issued Bar Matter (BM) 2012 that proposed rules on mandatory legal aid service for practicing lawyers. Lawyers were mandated to provide free legal services to indigents for a minimum of 60 hours annually with a minimum of five hours per month. It appears that BM 2012 has not been implemented to date.
In 2017, the Supreme Court proposed free legal services through the Community Legal Aid Service, mandating lawyers who passed the 2017 bar examination to render 120 hours of pro bono legal aid services to indigent litigants (AM 17-03-09-SC). Implementation, however, was suspended.
On July 27, 2009, Republic Act (RA) 9999, otherwise known as the “Free Legal Assistance Act of 2010,” was approved as law. RA 9999, which provided a tax incentive to lawyers who render actual free legal services to certain persons, declared the following as state policy:
“It is the declared policy of the State to value the dignity of every human person and guarantee the rights of every individual, particularly those who cannot afford the services of legal counsel.
“Furthermore, it is the policy of the State to promote a just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from poverty through policies and programs that provide adequate social services and improve the quality of life for all.
“In addition, the State shall guarantee free legal assistance to the poor and ensure that every person who cannot afford the services of a counsel is provided with a competent and independent counsel preferably of his/her own choice, if upon determination it appears that the party cannot afford the services of a counsel and that services of a counsel are necessary to secure the ends of justice and protect of the party.”
Last Sept. 13, 2022, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) 12-2022 providing guidelines on incentives that may be availed of under RA 9999.
Under RR 12-2022, lawyers or professional partnerships who render actual free legal services are entitled to an allowable deduction from gross income in the amount of either that that could have been collected for the actual free legal services rendered or 10 percent of the gross income derived from the actual performance, whichever is lower.
For purposes of the rule, the term “legal services” includes “any activity which requires the application of law, legal procedure, knowledge, training and experiences which shall include, among others, legal advice and counsel, and the preparation of instruments and contracts, including appearance before the administrative and quasi-judicial offices, bodies and tribunals handling cases in court, and other similar services as may be defined by the Supreme Court.”
Furthermore, the services must be rendered in favor of indigents. An indigent litigant is a person whose gross income and that of their immediate family do not exceed an amount double the monthly minimum wage of an employee and those who do not own real property with a fair market value (based on current tax declaration) of more than P300,000.00 (Supreme Court OCA Circular 34-2015, Feb. 18, 2015). The indigent litigants are also exempt from payment of legal fees.
Under RR 12-2022, incentives can only availed of upon submission of the following documents, to be attached to the annual income tax return of the lawyer or professional partnership:
– A certification from the Public Attorneys Office, Department of Justice or accredited association of the Supreme Court stating that the legal services provided were covered by the rule, that said agencies could not provide legal services, that legal services were actually rendered and the number of hours actually provided.
- Court can relax procedural rules
– An accomplished BIR Form 1701 (for individual lawyer) or BIR Form 1702-EX (for general professional partnerships); and
– A sworn statement as to the amount that could have been collected for the actual free legal service.