Proposal to lower personal income tax rates snowballs

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There are 3 Senate bills seeking to alter the income tax brackets. One of them, filed by Senator Ralph Recto, proposes no taxes for net income below P20,000

LOWER INCOME TAX? Sen Ralph Recto is one of three senators who filed proposals to reduce income tax rates. File photo by Alex Nuevaespaña/Senate PRIB

MANILA, Philippines – The proposal to lower personal income tax rates is snowballing.

Senate Pro Tempore Ralph Recto on Saturday, March 8, welcomed the openness of Bureau of Internal Revenue (BIR) chief Kim Henares to bills that seek recalibrate income tax brackets and rates. 

In an interview with ANC on Thursday Henares said her agency is considering drafting proposals to reduce personal income tax rates by 2015.

This came after Senator Juan Edgardo Angara filed Senate Bill 2149, seeking to reduce the individual income tax rate from 32% to 25%. He noted that the Philippines has the third highest individual income tax rate in the Association of Southeast Asian Nations (ASEAN), after Thailand (37%) and Vietnam (35%).

Currently, income tax rates range from 5% for those earning P10,000 a year to 32% for employees earning P500,000 and above annually.

Recto himself has filed SB 716, while Senator Benigno Aquino IV has filed SB 1942.

In his bill’s explanatory note, Recto said the individual tax brackets and rates should be adjusted to reflect the rising cost of goods. He noted that the present tax brackets were imposed in 1997, when the cost of goods was “half than what it is now.”

“The Consumer Price Index from 1998 to May 2013 almost doubled. The basket of goods costing P100 in 1998 was worth P196 in May last year,” he said in a statement.

Currently, a tax of 5% is imposed on those who earn below P10,000 in annual net taxable income. Those who earn above P10,000 but less than P30,000 pay taxes of P500 plus 10% in excess of P20,000.

Recto’s proposal will do away with taxes on net income of below P20,000.

He said the Senate will continue “calling hearings and running some numbers on how to adjust income tax rates which were pegged 17 years ago.”

Palace certification sought

In Thursday’s interview, Henares clarified the matter will have to be thoroughly studied and addressed in a “holistic manner.” 

She also said the bureau is concentrating on addressing loopholes in the system before considering drafting proposals on lowering taxes. (READ: Why do we pay taxes?)

Recto said the Senate is looking forward to the BIR’s proposal.

He added, “When it is ready, I hope it would come to us with a presidential certification that is an urgent measure.”

The proposals gained attention after the BIR’s controversial advertisement that drew flak from doctors, who felt they were portrayed as tax cheats.

Henares defended the ads, which showed a doctor piggybacking on a school teacher to illustrate the burden of improper tax payment. 

She said it was not meant to be insulting, adding, “If you’re paying the right taxes, it’s not alluding to you. If you’re not paying the right taxes, then it’s talking to you.”

Malacañang came to Henares’ defense on Saturday, March 8. Presidential Communications Operations Office Secretary Herminio Coloma Jr said the ad was not singling anyone out. 

He appealed to the public to cooperate and pay the right taxes, citing government estimates that the Philippines loses P400 billion each year to tax evasion.

Malacañang also emphasized the need to improve tax collection. Coloma said the Philippines’ taxation to GDP ratio is only at 14% – lower than in the mid-1990s, when the ratio was at 17%.

The tax-to-GDP ratio is the ratio of taxes collected against the country’s gross domestic product or GDP. It is a measure of how much taxes contribute to a country’s economy.

Coloma said the government must step up its tax drive to make the Philippines’ tax-to-GDP ratio at par with other ASEAN nations. – Katerina Francisco/Rappler.com

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