Various organizations led by the Trade Union Congress of the Philippines (TUCP), Financial Executives of the Philippines (FINEX) and the National Tax Research Center (NTRC) are backing the “long-overdue” reforms in personal income tax (PIT) rates proposed by the Department of Finance (DOF) along with other measures to make the tax system simpler, more equitable and more efficient, especially for low- and middle-income taxpayers.
The DOF-proposed tax reform package, as contained in House Bill 4774 authored by Quirino Rep. Dakila Carlo Cua, aims to lower PIT rates from the current 32 to 25 percent, except for the ultra-rich, and exempt compensation earners with a net taxable income of P250,000 and below from income taxation.
TUCP’s Arthur Juego said at a hearing of the House ways and means committee, which is chaired by Rep. Cua, that the labor group “welcomes the initiative of the government to reform the tax system, most especially the current income tax structure.”
Juego told lawmakers at the committee hearing that the proposed PIT reforms will “provide economic relief to workers who need to increase their take-home pay as the prices of basic necessities and services such as food, water, electricity, medicine, housing and transportation are constantly increasing.”
The Cua-chaired committee is tackling HB 4774 and more than 20 other pending bills seeking lower PIT rates.
FINEX president Benedicta Du-Baladad, for her part, said that that the organization, as a whole, fully supports HB 4774 because of its “features of progressivity, simplification and leveling the playing field.”
“For progressivity, we thought that re-bracketing the income brackets to make sure that basic income that is considered subsistence level, sufficient enough to cover the subsistence level of a certain individual or family, has been exempted,” Baladad said.
“On the other hand also, for the middle-income individuals that the tax has been reduced compared to those which are on the higher income [brackets],” she said.
NTRC Executive Director Trinidad Rodriguez noted that under HB 4774, the P250,000 threshold is net of de minimis benefits, mandatory contributions and the first P82,000 of the 13th month pay and other bonuses, “so effectively, what will be exempt in terms of gross compensation income is actually greater than P250,000.”
“So that will really benefit almost 99 percent of the compensation income earners in terms of reduced tax rates,” she said.
“We fully support the lowering of the personal income tax. This has been long overdue; it’s been [unchanged] for almost two decades. It’s just right that we reduce the tax rate and widen the taxable income brackets to address the so-called bracket creep, and this will also correct some of the inefficiencies and inequities in our present tax system,” said Rodriguez.
The Institute for Labor Studies (ILS), an attached agency of the Department of Labor and Employment (DOLE) likewise expressed its support for HB 4774. Its OIC-Deputy Executive Director Brenalyn Peji said ILS is backing HB 4774 “as these are supportive of the legislative agenda of President Duterte.”
“The DOLE, in general, supports those bills that will promote the welfare of our minimum wage earners, and even those who are earning above-minimum wage, Peji said.
She added that “the DOLE [is] one with the position of the DOF that a fairer, simpler and more effective taxation system will encourage or promote a more conducive environment for investments, which will eventually promote employment generation which can address our standing issues on unemployment and underemployment.”
The Nutritionist-Dietitians’ Association of the Philippines informed the committee that it is also supporting HB 4774, particularly “the restructuring (of) the income brackets and the reduced tax imposed on income taxes.”
“[Our organization has for its members] the people who are employed mostly in hospitals and public health agencies and institutions, so we depend on the income from salaries earned,” said the group’s president, Dr. Adela Jamorabo Ruiz.
“We appreciate this creation of a tax system that is simpler, fairer and more efficient. We do hope that these reforms will be expedited considering that professionals are taxed heavily,” she said.
HB 4774, which represents Package One of the DOF’s Comprehensive Tax Reform Program (CTRP), also provides for revenue-enhancing measures to offset the revenue erosion from the proposed cut in PIT rates.
According to DOF Undersecretary Karl Kendrick Chua, those earning between the above-minimum wage rate and P22,000 a month will pay zero tax under HB 4774.
The first P82,000 in the 13th month pay and other bonuses will be exempted from the PIT computation.
These PIT proposals will primarily benefit public school teachers, nurses, police and military officers, government employees, call center agents among other compensation earners in the public and private sector.
HB 4774, Chua said, will shift the tax burden to rich taxpayers.
Chua pointed out at the House hearing, though, that taxing the ultra-rich through their income is not enough because they comprise only less than 1 percent of the country’s individual taxpayers, based on BIR data. Those with a net taxable income of over P80,000 comprise only 3 percent of the individual taxpayer base.
The PIT reforms will lead to revenue losses estimated at P63 billion in the second half of 2017, P138 billion in 2018 and P152 billion in 2019, Chua said.
Thus, to raise enough funds for the Duterte administration accelerated spending on infrastructure, education, health, and social protection for the poorest of the poor, a set of revenue-enhancing measures is also included in HB 4774.
Finance Secretary Carlos Dominguez III said the Duterte administration’s target is to ramp up spending on infrastructure to P1.73 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 over the medium term.
Among the revenue-offsetting features of the bill are provisions expanding the value-added tax (VAT) base but retaining exemptions for seniors and persons with disabilities, and adjusting the excise taxes on automobiles and fuel, which will hit rich consumers the most as these are all consumption taxes.
Estate and donor taxes will also be reduced to a flat 6 percent under the tax reform bill.
HB 4774 also includes legislated administrative reforms at the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as a fuel marking and monitoring system to prevent oil smuggling, the use of e-receipts, the mandatory connection of the point-of-sale (POS) system of all establishments to the BIR, and the relaxation of bank secrecy laws for investigating and combating tax fraud
Complementary reforms to HB 4774 include introducing a new tax on sugar-sweetened beverages, indexing the motor vehicle user’s charge to inflation, and granting an amnesty to past estate tax cases.
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