Tax exemption bill hurdles Senate

MANILA, Philippines – The Senate passed on third and final reading yesterday the proposed measure seeking to exempt from income tax government and private employees earning minimum wage after President Arroyo certified it as urgent.

Sen. Francis Escudero, chairman of the ways and means committee, said the bicameral conference committee would harmonize the versions of the Senate and House of Representatives as soon as possible so the bill could be signed into law before Congress adjourns on June 11.

Exempting minimum wage earners from income tax will give them an additional P34 in their daily take-home pay.

“This is even higher than the P20 daily increase in minimum wage approved by the wage boards,” Escudero  said.

Voting unanimously, the senators said the measure would help workers cope with the rising prices of commodities.

Authors of the bill were Escudero, Senators Manuel Roxas II, Juan Ponce-Enrile, Richard Gordon, Juan Miguel Zubiri, Ramon Revilla Jr., Senate President Manuel Villar Jr. and Senate President Pro Tempore Jinggoy Estrada.

Escudero and Roxas expressed hope there would not be much contention between the House and the Senate on the final version of the bill, as both chambers had agreed to provide workers with the much needed relief in this time of crisis.

Escudero filed Senate Committee Report No. 53 last week recommending the approval of Senate Bill No. 2293 aimed at exempting minimum wage earners from paying income tax and adjusting their individual taxpayers’ personal and additional exemptions in order to approximate the increase in inflation since 1997.

Some of the differences between the Senate and House versions that should be reconciled include the exemption of holiday pay, hazard pay, overtime pay as well as nightshift differential pay, which is contained in SB 2293.

House Bill No. 3971 also approved the Simplified Net Income Taxation System (SNITS), but this was rejected by the Senate panel.

Instead, the Senate committee provided  the 40 percent Optional Standard Deduction (OSD) not only for the self-employed and professionals but also for corporations.

SNITS directs individuals engaged in trade, business and the practice of a profession – lawyers, doctors, dentists, certified public accountants, architects, artists and athletes, among others – to itemize a standard 40-percent deduction from their gross income.

OSD also provides for deductions not exceeding 40 percent for both individuals and corporations, but drops the need to itemize expenses. This is meant to offset the losses to be incurred once minimum wage earners are exempted from income tax.

Escudero said that after the passage of the Comprehensive Tax Reform or CTRP in 1997, the take home pay of workers had been drastically reduced by the spiraling cost of fuel products which spawned the increase in prices of commodities, power and transportation.

“Despite efforts to increase the standard of living of our people, only minimal adjustments were made on the salaries of workers in the private and government sector, who are also burdened by the inflexible individual income tax rates and pegged amounts of personal and additional exemptions in the CTRP,” Escudero said.

He noted that out of the estimated 2.484 million compensation income tax filers in 2004, approximately 87 percent comprised minimum wage earners.

For married individuals, the husband and wife, subject to a provision in the bill, shall compute their individual income tax separately based on their respective total taxable income: “Provided that if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income.”

According to the Department of Finance data, the government stands to earn P780 million from the proposed bill. This figure already deducted revenue losses due to the exemption of minimum wage earners and the adjustment of personal exemptions.

The bill increases the personal exemption of each taxpayer to P50,000, regardless of whether he or she is single or married. The additional exemption for each dependent up to four was also increased to P25,000 from P8,000.

Escudero said revenue loss from the tax relief for minimum wage earners, pegged at P3.16 billion, and the loss due to increase in exemption estimated at P11.09 billion, could be offset by the revenues to be generated from the OSD valued at P15.03 billion.