MANILA—Some 4.66 million taxpayers, or more than double the current figure of 1.8 million, will no longer pay their personal income tax (PIT) under the government’s highly progressive Comprehensive Tax Reform Program (CTRP), which aims to make the tax system simpler, fairer and more efficient, especially for low- and middle-income Filipino families.
Finance Undersecretary Karl Kendrick Chua said the Department of Finance (DOF)-endorsed tax reform bill now pending in the Congress will exempt 83 percent of individual taxpayers from the PIT, including 1.8 million minimum-wage workers who are already paying zero income tax as mandated by law, and close to another three million earners with a net taxable income of PHP250,000 and below, based on Bureau of Internal Revenue (BIR) data.
He said House Bill No. 4774, which represents Package One of the CTRP, also provides for revenue-enhancing measures to offset the revenue erosion from the lower PIT rates. HB 4774 was authored by Quirino Rep. Dakila Carlo Cua, who chairs the House ways and means committee.
“These revenue-enhancing measures primarily targets rich consumers and taxpayers so the government can still raise enough money for its unprecedented massive public investment program under the Duterte administration,” Chua said at the recent hearing of the House ways and means panel.
At the hearing, which focused on the PIT reductions, Chua said those earning between the above-minimum wage rate and PHP22,000 a month will pay zero tax under HB 4774. The first PHP82,000 in the 13th month pay and other bonuses will be exempted from the PIT computation.
For instance, a call center agent who earns PHP21,000 a month with a gross income of PHP273,000 inclusive of the 13th month pay and other benefits, will still fall under the zero-tax bracket.
This will save him or her almost PHP22,000 in foregone income tax payments because under the current system, the call center agent, even with two dependents, would still have to pay PHP21,867 in income tax because of an outdated tax structure in which his or her net taxable income of PHP136,834 would still be taxed PHP8,500 plus 20 percent in excess of PHP70,000.
Chua noted that HB 4774 aims to correct this form of “income creeping” through the adoption of a simplified and fairer system where the call center agent’s declared deductions and exemptions of PHP36,166–inclusive of the 13th month pay and mandatory contributions–would be deducted from the gross income of PHP273,000.
This will yield for this type of taxpayer a net taxable income of PHP236,834, which still falls under the zero-tax bracket, Chua said.
“Thus, under the tax reform bill, the call center agent’s take home pay will effectively increase by PHP21,867 annually because he would no longer have to pay this amount of income tax under the current system,” Chua said.
Public school tutors classified as Teacher I and II are also covered by the zero-tax bracket.
A Teacher II who earns PHP20,651 monthly or a gross income of PHP299,114 a year inclusive of benefits, will be taxed PHP18,011 under the current system. But under the proposed tax reform plan, a Teacher II will already be PIT-exempt, which means he or she gets to take home PHP18,011 more per year or an additional PHP1,500 a month.
An above-minimum wage earner with a monthly pay of PHP15,000 will get to take home at least PHP7,200 more with tax reform, because of his or her PIT-exempt status.
Chua said even middle-class taxpayers will benefit from tax reform by way of substantially lower PIT rates.
A government employee with Salary Grade 24, or one earning PHP56,610 a month, will have to pay PHP137,981 in PIT. But under HB 4774, the tax will be substantially reduced to only PHP90,141, effectively increasing the take-home pay to PHP47,840 a year or an addition of almost PHP4,000 a month.
HB 4774, Chua said, will shift the tax burden to rich taxpayers.
For instance a high-income earner who is paid PHP877,500 a month shells out PHP4,048,456 in PIT under the current system. Under HB 4774, this PIT will increase to PHP4,200,186 or by PHP152,730.
Chua pointed out though, that taxing the ultra-rich through their income is not enough because they comprise only less than 1 percent of the country’s individual taxpayers, based on BIR data. Those with a net taxable income of over PHP80,000 comprise only 3 percent of the individual taxpayer base.
The PIT reforms will lead to revenue losses estimated at PHP63 billion in the second half of 2017, PHP138 billion in 2018 and PHP152 billion in 2019, Chua said.
Thus, to raise enough funds for the Duterte administration accelerated spending on infrastructure, education, health, and social protection for the poorest of the poor, a set of revenue-enhancing measures is also tucked in HB 4774.
These include expanding the value-added tax (VAT) base but retaining exemptions for seniors and persons with disabilities, and adjusting the excise taxes on automobiles and fuel, which will hit rich consumers the most as these are all consumption taxes.
Estate and donor taxes will also be reduced to a flat 6 percent under the tax reform bill.
Cua’s bill also includes legislated administrative reforms at the BIR and Bureau of Customs (BOC) such as a fuel marking and monitoring system 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.
Complementary reforms to HB 4774 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.
At a previous House hearing, Finance Secretary Carlos Dominguez III said the Duterte administration’s target is to ramp up spending on infrastructure to PHP1.73 trillion; on education and training to PHP1.27 trillion; on health to PHP272 billion; and on social protection, welfare and job generation for the poorest of the poor to PHP509 billion by 2022–for a total public investment budget of PHP2.2 trillion over the medium term.
This would mean an estimated additional investment of PHP1.07 trillion for infrastructure, PHP718 billion for education, PHP139 billion for health, and PHP267 billion for social protection each year over the next six years, he said.