Business groups have expressed support for the passage of a proposal to lower individual income tax rates, which is the main intent of the Comprehensive Tax Reform Package (CTRP).
During the fifth hearing of the House Committee on Ways and Means, the Tax Management Association of the Philippines (TMAP), Financial Executives Institute of the Philippines (Finex), as well as the National Tax Research Center (NTRC), said the lowering of income tax rates will make the tax system simpler, fairer and more efficient, especially for low- and middle-income Filipino families.
TMAP President Malou Lim said her group appreciates government efforts in pursuing a tax-reform program that would promote a simpler income tax system.
“On the reduction of income tax rates, where the taxable income exempting P250,000 and below, we [are] fully supportive [of] that,” Lim said.
However, she asked the lower chamber to lower the top rate from the proposed 35 percent to 30 percent.
“On the top rate—the 35 percent—is very progressive. You know one of our goals is to be more competitive. We hope that this would be revisited, [and] we are proposing that the higher tax rate will be at 30 percent,” she said.
“We understand the 35 percent; we comparing it to Vietnam and Thailand, but if you will check the visions of the two countries effectively, there are a number of tax exemptions that they [give]…,” he added.
Long overdue
For her part, NTRC Director Trinidad Rodriquez said lowering individual income tax rates is actually long overdue.
“We support the lowering of income tax [since] this is been long overdue. It’s been there for almost two decades and it’s just right to lower the bracket to address the so-called bracket creeping, and this will also correct some inefficiencies and inequities in our present tax system,” he said.
“We also agree to the features of the bill, specifically on compensation income earners, which exempt annual income of P250,000 and below and the number of bracket from seven to six,” Rodriguez said.
Finex President Benedicta Du-Baladad said his group also agree, and strongly support House Bill (HB) 4774, which envisions to create a tax system that is more efficient and characterized by low rates and broad taxpayer base that promotes investment, job creation and poverty reduction.
“We agree to the tax exemption base of P250,000, but we request to cap the tax rate at 30 percent or, alternatively, to increase the threshold if a 35 percent rate is to be imposed,” Baladad said.
All or nothing
For his part, Finance Undersecretary Karl Kendrick Chua said the proposed CTRP has to be passed as a whole.
Chua said only with this sizable increase in revenues through tax can the government be able to meet its goal of drastically reducing poverty, and transforming the country into an upper middle-income economy come 2022 by spending big on infrastructure, human capital—education, health, lifelong training, and research and development (R&D)—and social protection for the poor and other vulnerable sectors.
Earlier Act Teachers Rep. Antonio Tinio, a member of the panel, said he will vote against the passage of the tax-reform bill if the committee will retain inflationary provisions in the package.
Tinio said the proposed offsetting measures, which will be shouldered by low-income earners and poor families, should be discussed separately by the lower chamber.
According to the lawmaker, there are no opposition to the income-tax reform unlike the other reforms it is proposed with, such as the excise taxes and value-added tax.
4.66 million Filipinos
Meanwhile, Chua said 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 CTRP.
“This a part of the bigger package, although we are giving away a lot of money to the people, we also need to remember that, as a part of the package, we also need to provide for the President’s other promises,” he said.
“So we want to emphasize that, while we want to reduce the personal income tax broadly, we also need to look at the bigger picture,” Chua added.
According to Chua, the Department of Finance-endorsed tax-reform bill now pending in 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 3 million earners with a net taxable income of P250,000 and below, based on Bureau of Internal Revenue (BIR) data.
He said HB 4774, which represents Package One of the CTRP, also provides for revenue-enhancing measures to offset the revenue erosion from the lower PIT rates. The bill was authored by Quirino Rep. Dakila Carlo Cua, who chairs the House Ways and Means Committee.
“These revenue-enhancing measures primarily target 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 hearing, which focused on the PIT reductions, Chua said those earning between the above-minimum wage rate and P22,000 a month will pay zero tax under HB 4774. The first P82,000 in the 13th-month pay and other bonuses will be exempted from the PIT computation.
For instance, he said 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.
“This will save him or her almost P22,000 in foregone income tax payments because 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 percent in excess of P70,000,” he said.
Chua noted that House Bill 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 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.
“Thus, under the tax reform bill, the call center agent’s 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 said.
He said public school tutors classified as Teacher I and II are also covered by the zero-tax bracket.
A Teacher II who earns P20,651 monthly or a gross income of P299,114 a year, inclusive of benefits, will be taxed P18,011 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 P18,011 more per year or an additional P1,500 a month, Chua added.
An above-minimum wage earner with a monthly pay of P15,000 will get to take home at least P7,200 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 P56,610 a month, will have to pay P137,981 in PIT. But under House Bill 4774, the tax will be substantially reduced to only P90,141, effectively increasing the take-home pay to P47,840 a year or an addition of almost P4,000 a month.
Shifting the burden
House Bill 4774, Chua said, will shift the tax burden to rich taxpayers.
“For instance a high-income earner who is paid P87,500 a month shells out P4,048,456 in PIT under the current system. Under House Bill 4774, this PIT will increase to P4,200,186 or by P152,730,” he said.
Chua said 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 P80,000 comprise only 3 percent of the individual taxpayer base.
The PIT reforms will lead to revenue losses estimated at P63 billion in the second half of 2017, P138 billion in 2018 and P152 billion in 2019, he added.
The House Committee on Ways and Means is eyeing the approval of tax package before the lower chamber goes on a break on March 15.
Under the bill, the tax shall be computed in accordance with and at the rates established in the two schedules.
Tax brackets
For 2018 and 2019, the new tax brackets are:
• those earning not over P250,000 will be exempted from paying tax;
- those earning over P250,000 but not over P400,000 would pay a fixed tax 20 percent of the excess over P250,000
- those earning over P400,000 but not over P800,000 would pay a fixed tax of P30,000 with an additional 25 percent of the excess over P400,000
- those earning over P800,000 but not over P2 million would pay an excess tax of P130,000 with an additional 30 percent of the excess over P800,000
- those earning over P2 million but not over P5 million would pay a fixed tax of P490,000 with an additional 32 percent of the excess over P2 million.
- those earning over P5 million would pay a fixed tax of P1,450,500 with an additional 35 percent of the excess over P5 million.
For 2020 onwards, the new tax brackets are:
- those earning not over P250,000 will be exempted from paying tax;
- those earning over P250,000 but not over P400,000 would pay a fixed tax of 15 percent of the excess over P250,000
- those earning over P400,000 but not over P800,000 would pay a fixed tax of P22,500 with an additional 20 percent of the excess over P400,000
- those earning over P800,000 but not over P2 million would pay an excess tax of P102,500 with an additional 25 percent of the excess over P800,000
- those earning over P2 million but not over P5 million would pay a fixed tax of P402,500 with an additional 30 percent of the excess over P2 million.
- those earning over P5 million would pay a fixed tax of P1,302,500 with an additional 35 percent of the excess over P5 million.
The bill said after 2020, the taxable income levels in the above schedules shall be adjusted once every five years through rules and regulation issued by the DOF.