Minimum wage earners now exempted from withholding taxes

Minimum wage earners, including government employees, are now exempted from withholding taxes, a move that was estimated to cost the government at least P400 million in foregone revenues.

The Department of Finance (DOF) announced yesterday that Finance Secretary Margarito B. Teves has finally signed the revenue regulation that would exempt minimum wage earners from the withholding tax.

Being exempted from withholding tax payments, however, will not mean that minimum wage earners are completely exempted from income taxes.

The exemption only meant that minimum wage earners will be given the option to pay their annual income tax directly to the BIR at the end of the taxable year on April 15.

"The law already gives minimum wage earners the option of opting out of the withholding taxes, that’s why the exemption would only require a revenue regulation from the BIR," Teves said. "We are just implementing that provision but they still have to pay the tax on their own."

Realistically, however, the source said minimum wage earners who have been exempted from withholding tax payments are not likely to actually pay the lumpsum amount to the BIR.

"In practice, it’s going to be a de facto exemption," said a source from the DOF.

At present, the source said only about 13 percent of the country’s minimum wage earners are still covered by the tax net.

The majority of minimum wage earners no longer pay the income tax anyway since most of them had qualified deductions that ultimately exempt their net income from taxation.

From this 13 percent, the source said the government collects around P445 million every year. If the exemption is implemented, the source said the government expected to lose P400 million and collect only P45 million a year from minimum wage earners.