Workers may not yet enjoy full benefits of higher tax exemption

Government and private employees may not enjoy the full benefits of Republic Act 9504 or the law that increases the tax exemptions for minimum wage earners (MWEs) this year, a tax lawyer said yesterday.

The law, which increases the tax exemptions for regular income earners, has started last July 2008. The intent of the law was to increase the monthly take home pay of employees and exempt minimum wage earners from tax payments.

However, a lawyer from auditing firm Punongbayan and Araullo said that there are provisions in the law that may not be fully beneficial to employees.

Benedicta Du-Baladad, head of Punongbayan’s Tax Advisory and Compliance group believes that in the case of withholding tax, employees will not enjoy the full benefits because the law applies retroactively to July 2008 and not January 2008, according to the implementing rules published last Sept. 22.

For instance, if an employee is enjoying a personal tax exemption of P20,000 a year, the new law mandates that the tax exemption would increase to P50,000.

However, Du-Baladad said that since the new law’s implementation started only last July, the increase in personal tax exemption will only be P35,000 and not P50,000 for 2008.

She said this is computed by adding P10,000 or half of the P20,000 which is the amount of personal tax exemption under previous law and P25,000 or half of the P50,000 which is the amount of personal tax exemption under Republic Act 9504.

The Bureau of Internal Revenue (BIR) has issued a transitional withholding tax table as part of the law’s implementation.

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.