DOF issues rules on minimum wage tax exemption

The Department of Finance (DOF) has issued the implementing rules and regulations (IRR) of Republic Act 9504 or the law that increases the tax exemptions for minimum wage earners (MWEs) and increases the tax exemptions for regular income earners.

The rules, published yesterday, will apply retroactively starting July 6, 2008 and not January 1, 2008 as some lawmakers wanted.

The implementing rules also stipulated that minimum wage earners receiving extra income from other sources are not exempted from income tax.

“MWEs receiving other income, such as income from the conduct of trade, business or practice of profession, except income subject to final tax, in additional to compensation income are not exempted from income tax on their entire income earned during the taxable year,” the IRR said.

A Finance official explained that while minimum wage earners are now exempted from the payment of income taxes, they are still obliged to pay taxes for income they generate outside their regular jobs such as through small businesses.

The implementing rules also stressed the exemption granted for holiday pay, overtime pay, night shift differential pay and hazard pay earned by employees in the public sector.

Because of the minimum wage law, the BIR expects to collect only P801.268 billion this year, or P44 billion lower than the target of P845 billion.

The BIR’s projection took into account the P11.8 billion estimated foregone revenues from the implementation of the minimum wage law.