99% of taxpayers to enjoy higher take-home pay: Angara

September 20, 2017

Higher take-home pay awaits millions of Filipino workers as the income tax system will finally be amended two decades after it was enacted, a statement from the Senate said Wednesday.

Under the Senate ways and means committee report, the first P150,000 annual taxable income will be exempted, while retaining the P82,000 tax exemption for 13th month pay and other bonuses and the maximum P100,000 additional exemption for up to four dependents.

This translates to an approximate tax-free monthly income of P25,000 for workers with four dependents--in line with President Rodrigo Duterte's campaign promise to exempt workers earning P25,000 and below from income tax.

With this proposal, based on data from the Bureau of Internal Revenue (BIR), almost all or 99 percent of the estimated 7.5 million individual income taxpayers will enjoy lower income tax rates.

From the current two million tax-exempt minimum wage earners, the proposed new tax scheme will triple the exempt income taxpayers to around six million.

"Our workers are finally getting the tax relief due them. We have been advocating the reform of our income tax brackets and rates for several years now to put more money in people's pockets," said Senator Sonny Angara, chairman of the Senate ways and means committee.

For instance, a teacher, who has two dependents, with a monthly income of about P17,254 is currently taxed at 20 percent. Under the proposal, he or she will be exempt and will no longer have to pay taxes. The teacher will be able to take home bigger pay and save roughly P13,176 in annual taxes or P1,098 monthly savings.

Another example: a call center agent, with no dependent, earning about P16,136 a month is currently taxed at 20 percent. Under the proposal, his or her current P20,576 annual tax due will be reduced to P4,557 at a lower tax rate of 15 percent, resulting to approximately P16,019 annual savings--close to the call center agent's monthly income.

"It's as if we gave 14th month pay to our countrymen. Their earnings will increase. With the extra take-home pay, there will be more food for a family, more money to pay rent, buy clothes or milk for babies, tuition, more money for students allowance or project and medicines for grandparents," said Angara

The bill also provided for indexation or automatic adjustment of the income tax schedule every three years so there won't be any repeat of an outdated and unjust income tax system where lower income earners are pushed to higher tax brackets because of inflation.

A distinction between the tax treatment of compensation income earners and self-employed individuals and professionals is proposed.

Under the Senate version, the eight percent flat tax on gross sales or receipts is made optional so that self-employed and professionals can choose which tax rate (either eight percentflat tax or schedular personal income tax rate) is more favorable to them.

"We introduced an eight percent flat tax for easier compliance. Hopefully, giving them the choice of which tax regime to follow incentives them to pay their taxes correctly," Angara said.

According to BIR data, self-employed and professionals only contribute 15 percent of the total income tax collection.

The value-added tax (VAT) threshold is also raised from P1.9 million to P3 million--exempting small businesses with total annual sales of P3 million and below from paying VAT. Angara said this would provide them due tax relief. DMS