Tax-exemption bill rushed
Senate expected to pass its version next week
By Dona Pazzibugan, Michelle Remo
Philippine Daily Inquirer
First Posted 05:24:00 05/23/2008
Filed Under: Legislation, State Budget & Taxes, Wages & Pensions, Congress
MANILA, Philippines -- With three weeks left before Congress goes into recess, the Senate is rushing the approval of a long-awaited measure that seeks to exempt minimum wage earners from paying the income tax.
The Senate late Wednesday approved on second reading without amendments its version of the bill -- the House passed its own version in early May -- which not only recommends a tax exemption for minimum wage earners but also proposes to expand the personal exemptions of individual taxpayers to increase their take-home pay. The measure is expected to pass on final reading next week.
Sen. Francis Escudero, the bill’s author, assured other senators that the measure would not result in lower government revenues.
No revenue loss
The Department of Finance has already said the Senate version is acceptable as it contains a provision that would offset the revenues that government will be losing from the tax relief given to individual taxpayers.
The government’s capability to generate revenues would not be adversely affected, said a DFA official who asked not to be named as he is not authorized to speak for the department.
The House and the Senate still have to reconcile the two versions in a bicameral conference committee and approve a final version before submitting it to Malacańang for signing.
This will all have to be done before the last session day on June 11. Congress goes on a month-long break on June 13.
Escudero said the Senate version gives minimum wage earners an additional take-home pay of P34 a day, or about P1,000 a month.
Personal exemption
The Senate measure adopted the House version’s provision increasing the personal tax exemption of each individual taxpayer to a uniform P50,000.
The tax code at present only allows a P20,000 exemption for single individuals, a P25,000 exemption for a head of family, and a P32,000 exemption for each married individual.
Like the House version, the Senate version also raised the exemption for each of a maximum four dependents to P25,000 from the current P8,000.
In effect, a family of six with both spouses working will be exempted from paying any taxes if their annual income is P200,000 and below.
Escudero said 2.855 million income tax filers will benefit from the proposed exemptions.
The difference between the Senate and House versions is that the former exempts the holiday pay, hazard pay, overtime pay and the night shift differential pay from income tax.
The Senate version also rejected the simplified net income taxation system (SNITS) for self-employed and professionals adopted by the House version.
The SNITS aims to simplify the income tax for self-employed individuals and professionals such as lawyers, doctors, accountants, architects, artists and athletes but limits allowable deductions.
Increased deduction
The Senate version instead increased the optional standard deduction (OSD) from 10 percent to 40 percent to encourage professionals and the self-employed to declare their income.
The OSD is also aimed at improving collection of taxes from corporate entities, which will have the option of deducting a standard 40 percent from gross revenues to determine taxable income.
The DOF official said this would be helpful to micro and small enterprises which would not be able to afford to hire accountants to compute their taxable income.
Under the present system, businesses compute the amount of allowable deductions -- which include operations expenses such as purchase of raw materials and employees’ salaries -- from the income tax to determine taxable income.
The DOF believes that providing the option of deducting 40 percent from gross revenues makes the process easier for business entities. As a result corporate taxpayers will be encouraged to pay taxes promptly and accurately.
‘The best’ for the people
Through the 40 percent OSD scheme, the government would recover lost revenues from the additional tax exemption, said Escudero.
“This is the best we can give our people,” he said, noting that the government has to balance giving tax relief with the need for revenues.
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