Senate hikes tax exemption for bonuses up to P82,000

Sen. Sonny Angara: Bill sponsor. INQUIRER file photo

MANILA, Philippines–The Senate has approved on second reading a bill that would allow more workers to enjoy their Christmas bonuses in full by raising the tax exemption cap for the 13th month pay and other benefits from P30,000 to P82,000.

If the current proposal to raise the ceiling for tax exemptions becomes law, the 13th-month pay and other benefits, including Christmas bonuses and productivity bonuses not exceeding P82,000, would be exempted from tax.

The Senate plans to approve the bill on third and final reading before the end of the year, though the measure may not yet take effect in time for the December bonuses.

The original bill, endorsed by the Senate ways and means committee, pegged the ceiling for tax-exempt bonuses at P75,000, but this was raised to P82,000 during plenary deliberations upon the proposal of Sen. Ralph Recto.

The bill’s sponsor, Sen. Sonny Angara, said he accepted Recto’s amendment because this adjustment was more consistent with the inflation rate as of October.

“In fact, the same figure was given by (Bureau of Internal Revenue [BIR]) Commissioner Kim Henares in one of the hearings when she said that P30,000 in 1994 would be worth around P82,000 today,” Angara said.

Adjustment every 3 years

If ever, this would be the first adjustment of the ceiling for tax-exempt bonuses since 1994, even though the finance secretary has the power to do this under the tax code.

Angara said the Senate version of the bill also included a provision requiring the periodic adjustment of the tax exemption ceiling for inflation.

“In order for this injustice not to happen again because we left our system unchanged and outdated, our measure mandates that adjustments be made every three years after the effectivity of this law, taking into account inflation,” he said.

The exemption would apply to government and private sector employees.

Another amendment to the bill, from Senate President Franklin Drilon, states that the finance secretary’s failure to come up with rules and regulations should not prevent the effectivity of the law.

But Drilon said over dzRH on Wednesday that there was little time to see to it that the bill would apply to December bonuses because it would need implementing rules and regulations from the BIR.

Income gained

Recto, in a statement, said the increase in the ceiling of tax-exempt bonuses should not be viewed as a revenue loss for the government and should be seen as “income gained by the workingman.”

“And even if his 13th-month pay is tax-exempt upon receipt, it will be taxable when spent. So, tax not withheld at source will later be captured in the form of sales tax at points of sale,” he said.

Earlier, finance officials warned that raising the tax exemption cap would result in revenue loss to the government of about P30 billion a year.

But other experts tapped by the ways and means committee contended that any revenue loss would be just P3 billion.

Asked if the bill would have a retroactive effect for bonuses given out this year should it become law by December, Angara said there would be none.

“As a rule, laws are prospective in application,” he said.

Originally posted at 8:12 pm | Wednesday, November 19, 2014