OUR 1987 Constitution provides for a uniform, equitable and progressive system of taxation, wherein taxes are based on one’s ability to pay. The poor and the middle class should not be taxed at the same level as the upper class. This is not the case, however, looking at our current tax rates. The Philippines has one of the highest personal income tax rate at 32 percent. This rate has not been adjusted for decades, distorting the lines between the poor, the middle class and the wealthy. The result is, an ordinary employee who earns more than P500,000 annually pays the same 32 percent tax rate as that paid by a company president.
Recently, the government increased the tax exemption for bonuses and other benefits. On Jan. 5, 2015, the Bureau of Internal Revenue (BIR) released Revenue Regulation (RR) No. 1-2015, expanding the list of tax-exempt benefits to include those received via collective bargaining agreements, as well as productivity incentive schemes to the extent of P10,000 per employee per taxable year.
13th month pay
On Feb. 12, 2015, President Benigno Aquino III signed into law Republic Act No. 10653, which increased the ceiling on tax-exempt 13th month pay and other benefits to P82,000 from P30,000. The new law also mandates that the President adjust this threshold every three years to its present value using the consumer price index as published by the National Statistics Office.
Despite these developments, the tax savings may only be felt by those receiving 13th month pay and other bonuses of more than P30,000 a year. How about the low- and middle-income earners? Does the government intend to relieve them of some tax burden as well?
There is hope for the middle-income earners. The good news is our lawmakers have bills pending in both houses of Congress to reduce the income tax burdens on individuals.
One bill aims to increase personal exemptions. For almost several years, the amounts of personal exemptions for individuals have remained the same. In 2008, the allowable basic exemption was increased to P50,000 whether married, head of the family or single. While additional exemption for each qualified dependent up to a maximum of four was increased to P25,000. Since personal exemptions are meant to cover living expenses, these and additional exemptions should also be adjusted.
Tax brackets
The other bill pending seeks to amend the tax brackets effectively reducing the tax rates on the personal income of individuals. This bill was drafted as a measure to discourage migration of our country’s workforce as well as to attract human capital in time for the implementation of the Association of South East Asian Nations (Asean) Economic Community (AEC). The AEC has the goal of regional economic integration will commence on December 31, 2015. One of the objectives of the integration is to create a single market and production base through the free movement of goods, services, investment and skilled labor in the region.
When the AEC Declaration was signed in 2007, some member-states started to gradually lower their corporate and individual income tax rates. If Asean Integration goes through this year, the Philippines must prepare itself for the competition from other Asean nations. The Filipino workforce may move elsewhere to seek a better quality of life, making it critical for the government to address the problem of improving local conditions.
Revenue loss?
I hope the government supports these bills geared towards adjusting the taxes on individuals. Some may oppose the lower taxes on the contention that it may result in revenue losses for the government which may hinder the country’s continuous economic growth. However, lowering income tax rate on individuals does not necessarily mean revenue loss for the government. The counter-argument has always been that when individuals are taxed less, it increases their purchasing power – these purchases are taxable and will result in higher income for corporations, which income is in turn taxable by the government – in effect a win-win scenario.
Higher taxes may be justifiable and bearable if these would mean a better standard of living. A government that asks for more taxes must deliver on an implied promise of quality infrastructure, efficient public transportation, better health care services, increased education and research and development funding, among other things. Otherwise, there would be little or no return for the public. Currently, the government is still working on improving its services, but my hope is that it gives its citizens the freedom to help themselves — by enacting fair and equitable tax laws.
(Donna Flor V. Lipat is a tax senior at the Cebu branch of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.)
Published in the Sun.Star Cebu newspaper on March 03, 2015.
