Call center agents and other employees with a monthly income of P21,000 will be exempted from paying the personal income tax (PIT), generating savings of over P20,000 annually, under the first package of the comprehensive tax reform plan (CTRP) as crafted and filed by the head of the House ways and means committee in close coordination with the Department of Finance (DOF).
Finance Undersecretary Karl Kendrick Chua said the revised CTRP Package One under House Bill 4774 that was filed by Rep. Dakila Carlo Cua retained the DOF- proposed exemptions on the first P82,000 of earnings from the 13th month pay and other bonuses received by taxpayers, which, in turn, increased the threshold for those who will pay zero tax under the tax reform plan.
Before the Lenten break of the Congress, the House Ways and Means Committee chaired by Cua already agreed in principle to tackle the bill as a package, which puts to rest concerns that the Congress might abandon the revenue-generating measures of the proposal and only pass the revenue-eroding portion lowering income tax rates.
“Tax rates for 99 percent of taxpayers will gradually decrease over the next few years of implementation under HB 4774,” Chua said.
“The simplified tax system will increase the take-home pay of most individuals, putting more money in people’s pockets, which they can use to save for the future or spend on their families’ needs, such as for tuition or school expenses of their children,” Chua said.
Cua, who chairs the House panel that will study the CTRP, filed HB 4774 seeking various amendments to the National Internal Revenue Code last Jan. 17, following extensive consultations with DOF officials on this tax reform plan.
HB 4774’s proposed amendments to the Tax Code call for the lowering of PIT rates and a corresponding set of measures to compensate for the revenue losses arising from the reduced tax rates and raise much-needed funds for the Duterte administration’s public investment program.
Cua’s bill retained the original DOF proposal of exempting those with a net taxable income of P250,000 and below, but included a provision exempting the first P82,000 in 13th-month pay and other bonuses from the computation of income tax.
Thus, a call center agent, for instance, 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.
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 net taxable income of P136,834 would still be taxed P8,500 plus 20 percent in excess of P70,000.
Chua noted that HB 4774 aims to correct this “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.
“Under the tax reform plan, his 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.
“This tax policy reform under the bill is among the measures we are supporting to make the country’s tax system simpler, fairer and more equitable, especially for the poor and low-income Filipinos,” Chua said.
The revised package under HB 4774 also includes lowering the rates for estate and donor’s taxes, adjusting automobile and fuel excise taxes, and expanding the value-added tax (VAT) base but retaining the exemptions enjoyed by senior citizens and persons with disabilities.
Complementary reforms to this revised tax package include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation, and granting amnesty to past estate tax cases.
The estate tax, which is a tax imposed on the privilege of transferring ownership of properties upon the death of the owner, will also be reduced from the current maximum rate of 20 percent to 6 percent, under HB 4774.
Moreover, this bill also includes legislated administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as fuel marking and monitoring to prevent oil smuggling, the use of e-receipts, the mandatory connection of the point-of-sale system of all establishments to the BIR, and the relaxation of bank secrecy laws for investigating and combating tax fraud.
Chua said the Duterte administration’s target is to ramp up spending on infrastructure to P1.83 trillion; on education and training to P1.27 trillion; on health to P272 billion; and on social protection, welfare and job generation for the poorest of the poor to P509 billion by 2022–for a total public investment budget of P2.2 trillion.
This would mean an estimated additional investment of P1.07 trillion for infrastructure, P718 billion for education, P139 billion for health, and P267 billion for social protection each year over the next six years, he said.
He said the Duterte administration needs to raise some P366 billion a year over the medium term, of which some P206.8 billion is expected to come from tax reform in the first full year of its implementation, for it to mount an unprecedented investment strategy that would finally put the Philippines on an “irreversible” path to high and inclusive growth.
Chua said that only with this sizable increase in revenues, can the government meet its goal of drastically reducing poverty and transforming the country into an upper middle-income economy in 2022 by spending heavily on infrastructure, human capital–education, health, life-long training, and research and development (R&D)–and social protection for the poor and other vulnerable sectors.
“However, without this planned investment buildup via tax reform, the government will merely “muddle through” and cannot meet the prerequisites to high and inclusive growth, which are a growth rate of at least 7 percent per year, and driven by investments rather than by consumption,” Chua said.
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