Bill to lower income tax rates

MANILA — Rep. Arthur Yap (3rd District, Bohol) is seeking to reform the current personal income tax system to effectively reduce the taxes on low-income earners, which will allow them a higher net income and increase their purchasing power.

Yap said his proposal also ensures the government will be able to collect a larger share of income from those who can afford to pay more.

“For both objectives, no additional financial burden is needed to be imposed on employers. Effectively, the income tax reform will create a more equitable and just tax system for a majority of Filipino taxpayers while ensuring the government is still able to raise revenues for its important programs,” said Yap.

Yap’s proposal is embodied in House Bill 39 which seeks to amend Section 24 (A) (1) of Republic Act no. 8424, otherwise known as the National Internal Revenue Code of 1997, as amended by RA 9504.

Yap, a former Agriculture Secretary during the Arroyo administration, said the country has achieved a status of an emerging economy, steadily growing with the government expecting a full-year Gross Domestic Product (GDP) growth of 6.5 percent to 7 percent in 2014.

But as the national economy move towards inclusive growth, Yap said the government must create the necessary mechanisms to enable the vast majority of Filipino wage-earners to share and enjoy the fruits of economic growth.

“Ordinary Filipinos are still reeling from the pinches of rising prices of commodities and high income taxes,” lamented Yap.

The lawmaker explained that one big issue against the present law, Republic Act 9504, is its failure to review and update the decades old income tax rates under Section 25 (A) 1 of RA 8424 or the NIRC Law.

“This created an absurd scenario wherein an employee, who graduates from earning minimum wage or earnestly only a little over said floor wage, jumps to paying a very high rate of tax payable,” said Yap.

For instance, Yap said a minimum wage earner in Metro Manila would earn about Php 150,072.00 per annum (P481 X 26 working days X 12 months). Under the old tax rates, said person is liable to pay taxes at the rate of Php 22,500.00 + 25% of the excess over Php 140,000. Now under RA 9504, he is exempt from paying taxes.

If said person earns just a peso higher than the minimum, example Php 481 per day, Yap said his annual gross income would increase to Php 150,384.00 However, his net take home pay would be drastically reduced to Php 125,288.00 (Php 150,384.00 – Php 22,500.00 + 25% of Php 10,384).

“By earning an additional Php 312 per year, his net income or take home pay was reduced by P25,096.00. This absurdity negates any increase that would be granted to an employee. It effectively discourages an employee to ask for a salary that is only a little higher than the minimum,” said Yap.

Under the bill, the income tax rate of minimum wage plus Php 1 but not more than Php 100,000 is two percent, the minimum wage plus Php 100 but not over Php 300,000 is Php 100 plus 5 percent of the excess over minimum wage plus Php 100,000, the minimum wage plus Php 300,000 but not over Php 500,00 is Php 500 plus 10 percent of the excess minimum wage plus Php 300,000.

Likewise, the income tax rates of minimum wage plus Php 500,000 but not over Php 1 million is Php 2,500 plus 15 percent of the excess over minimum wage plus Php 500,000, the minimum wage plus Php 1 million but not over Php 5 million is Php 8,500 plus 20 percent of the excess over minimum wage plus Php 1 million and the minimum wage plus Php 5 million but not over Php 10 million is Php 22,500 plus 25 percent of the excess over minimum wage plus Php 5 million.

Lastly, the income tax rates of minimum wage plus Php 10 million but not over Php 10 million is Php 50,000 plus 30 percent of the excess over minimum wage plus P10 million and minimum wage plus over Php 50 million is Php 125,000 plus 32 percent of the excess over minimum wage plus Php 50 million.

The bill exempts minimum wage earners from payment of income tax on their taxable income. Their 13th month pay, earned sick, vacation and other leave credits convertible to cash, holiday pay, overtime pay, night shift differential pay, separation pay, retirement pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax.

Not later than five years after the effectivity of the Act and every five years thereafter, the net taxable income levels and nominal tax rates shall be adjusted to their present value using the Consumer Price Index (CPI) as published by the National Statistics Office (NSO). PNA/