Press Release
September 20, 2017

Up to P25,000 monthly income to be tax exempt

Higher take-home pay awaits millions of Filipino workers as the income tax system will finally be amended two decades after it was enacted.

Under the Senate ways and means committee report, the first P150,000 annual taxable income will be exempted, while retaining the P82,000 tax exemption for 13th month pay and other bonuses and the maximum P100,000 additional exemption for up to four dependents.

This translates to an approximate tax-free monthly income of P25,000 for workers with four dependents--in line with President Rodrigo Duterte's campaign promise to exempt workers earning P25,000 and below from income tax.

With this proposal, based on data from the Bureau of Internal Revenue (BIR), almost all or 99% of the estimated 7.5 million individual income taxpayers will enjoy lower income tax rates.

From the current 2 million tax-exempt minimum wage earners, the proposed new tax scheme will triple the exempt income taxpayers to around 6 million.

"Our workers are finally getting the tax relief due them. We have been advocating the reform of our income tax brackets and rates for several years now to put more money in people's pockets," said Senator Sonny Angara, chairman of the Senate ways and means committee.

For instance, a teacher, who has two dependents, with a monthly income of about P17,254 is currently taxed at 20%. Under the proposal, he or she will be already exempt and will no longer have to pay taxes. The teacher will be able to take home bigger pay and save roughly P13,176 in annual taxes or P1,098 monthly savings.

Another example: a call center agent, with no dependent, earning about P16,136 a month is currently taxed at 20%. Under the proposal, his or her current P20,576 annual tax due will be reduced to P4,557 at a lower tax rate of 15%, resulting to approximately P16,019 annual savings--close to the call center agent's monthly income.

"Para na rin po tayong nagbigay ng 14th month pay sa ating mga kababayan. Lalaki na ang maiuuwing sahod o kita ng mga Pilipino sa kanilang pamilya. Sa extra na take-home pay, may extra para sa pagkain ng pamilya, para sa upa ng bahay, para sa damit at gatas ni baby, para sa matrikula, baon at school project ng mga bata, o kaya para sa gamot ni lola o lolo," the senator said.

The bill also provided for indexation or automatic adjustment of the income tax schedule every three years so there won't be any repeat of an outdated and unjust income tax system where lower income earners are pushed to higher tax brackets because of inflation.

"Dahil sa kakulangan sa 1997 Tax Code, lumalaki man ang sweldo, kinakain naman ng tax ang taas ng kita. Winawasto ng panukala ng Senado ang di-makatarungang sitwasyong ito, upang sa ganoon, mas mapapakinabangan ng tao ang araw-araw nilang pinagtatrabahuhan," he explained.

Moreover, a distinction between the tax treatment of compensation income earners and self-employed individuals and professionals is proposed.

Under the Senate version, the 8% flat tax on gross sales or receipts is made optional so that self-employed and professionals can choose which tax rate (either 8% flat tax or schedular personal income tax rate) is more favorable to them.

"We introduced an 8% flat tax for easier compliance. Hopefully, giving them the choice of which tax regime to follow incentivizes them to pay their taxes correctly," Angara said.

According to BIR data, self-employed and professionals only contribute 15% of the total income tax collection.

With higher income tax exemption, marginal income earners--who are self-employed individuals deriving gross sales or receipts not exceeding P100,000--will be exempt from paying income taxes. These include farmers and fisherfolk, sari-sari store owners, carinderia owners, market vendors, and tricycle drivers.

"By automatically exempting them from income tax, in effect, marginal income earners would finally be afforded equal protection and benefits that the minimum wage earners have long been enjoying," the lawmaker said.

The value-added tax (VAT) threshold is also raised from P1.9 million to P3 million--exempting small businesses with total annual sales of P3 million and below from paying VAT.

Angara said this would provide them due tax relief that would encourage them to grow, and generate more and better jobs for Filipinos.

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