Tax exemption for minimum wage earners started July 2008 - BIR

The Bureau of Internal Revenue (BIR) maintained that the implementation 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 has started last July 2008 and will not apply retroactively to January 2008 as some lawmakers want.

Senator Francis Escudero and Antique Rep. Exequiel Javier, chairpersons of the Senate and House ways and means committees, respectively, have sent a letter to the Department of Finance (DOF) and the BIR last week insisting that the law should be retroactive to January 2008.

However, BIR Commissioner Lilian Hefti said yesterday that the implementing rules and regulations have already been published.

“So for now, we will maintain the status quo. The effectivity date of the law is July 2008,” Hefti said.

The DOF and the BIR already published the implementing rules last Sept. 22, stipulating that the law applies retroactively to July 2008 and not January 2008.

It 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 starting July 2008.