No tax for Filipinos earning P21,000 or below monthly under revised DOF proposal

MANILA, Philippines – Under a revised proposal, Filipinos with a monthly income of P21,000 or below will be exempted from paying personal income tax, generating over P21,000 in savings annually.

This is among the tax reform plans included in the first package crafted and filed by the head of the House ways and means committee in close coordination with the Department of Finance (DOF).

Finance Undersecretary Karl Kendrick Chua said the revised Comprehensive Tax Reform Plan (CTRP) Package One under House Bill (HB) 4774 that was filed by Quirino Representative Dakila Cua retained DOF-proposed exemptions on the first P82,000 of earnings from the 13th month pay and other bonuses received by taxpayers.

This will, in turn, increase the threshold for those who will pay zero tax under the tax reform plan. (READ: Why PH has 2nd highest income tax in ASEAN)

Before Congress’ Lenten break, the House ways and means committee chaired by Cua already agreed in principle to tackle the bill as a package, which puts to rest concerns that Congress might abandon the revenue-generating measures of the proposal and only pass the revenue-eroding portion lowering income tax rates.

“Tax rates for 99% of taxpayers will gradually decrease over the next few years of implementation under HB 4774,” DOF’s Chua said in a statement on Sunday, April 23.

“The simplified tax system will increase the take-home pay of most individuals, putting more money in people’s pockets, which they can use to save for the future or spend on their families’ needs, such as for tuition or school expenses of their children,” he added.

Cua filed HB 4774 seeking changes to the National Internal Revenue Code last January 17, following extensive consultations with DOF officials on this tax reform plan.

HB 4774’s proposed amendments to the Tax Code call for the lowering of personal income tax rates and a corresponding set of measures to compensate for the revenue losses.

Cua’s bill retained the original DOF proposal of exempting those with a net taxable income of P250,000 and below, but included a provision exempting the first P82,000 in 13th month pay and other bonuses from the computation of income tax.

For instance, a call center agent who earns P21,000 a month with a gross income of P273,000 inclusive of the 13th month pay and other benefits will still fall under the zero-tax bracket.

Proposed changes

Under the current system, the call center agent, even with two dependents, would still have to pay P21,867 in income tax because of an outdated tax structure in which his or her net taxable income of P136,834 would still be taxed P8,500 plus 20% in excess of P70,000.

Chua noted that HB 4774 aims to correct this “income creeping” through the adoption of a simplified and fairer system where the call center agent’s declared deductions and exemptions of P36,166 – inclusive of the 13th month pay and mandatory contributions – would be deducted from the gross income of P273,000. 

This will yield for this type of taxpayer a net taxable income of P236,834, which still falls under the zero-tax bracket, Chua said. 

“Under the tax reform plan, his take-home pay will effectively increase by P21,867 annually because he would no longer have to pay this amount of income tax under the current system,” Chua explained.

“This tax policy reform under the bill is among the measures we are supporting to make the country’s tax system simpler, fairer, and more equitable, especially for the poor and low-income Filipinos,” he added.

The revised package under HB 4774 also includes lowering the rates for estate and donor’s taxes, adjusting automobile and fuel excise taxes, and expanding the value-added tax (VAT) base but retaining the exemptions enjoyed by senior citizens and persons with disabilities. 

Complementary reforms to this revised tax package include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation, and granting an amnesty to past estate tax cases.

The estate tax, which is a tax imposed on the privilege of transferring ownership of properties upon the death of the owner, will also be reduced from the current maximum rate of 20% to 6%, under HB 4774. 

The bill also includes administrative reforms in the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) such as fuel marking and monitoring to prevent oil smuggling, the use of e-receipts, the mandatory connection of the point-of-sale system of all establishments to the BIR, and the relaxation of bank secrecy laws for investigating and combating tax fraud.

Chua said the Duterte administration’s target is to ramp up spending on infrastructure to P1.83 trillion; on education and training to P1.27 trillion; on health to P272 billion;  and on social protection, welfare, and job generation for the poorest of the poor to P509 billion by 2022. This is a total public investment budget of P2.2 trillion. – Rappler.com