Lawmakers eyeing other measures on tax relief

MANILA, Philippines - More lawmakers are calling for another approach to give workers and other salaried employees tax relief.

Alay Buhay Rep. Wes Gatchalian is urging the House of Representatives and the Senate to amend Republic Act No. 9504 to increase personal tax exemptions from P50,000 to P100,000 for a working spouse and from P25,000 to P50,000 for each dependent.

“It aims to raise the level of tax exemption according to present expenditure realities and give financial breaks to individuals in need. It seeks to ease the burden of low-income earners as a way of tax relief by implementing reasonable deductions and updated tax exemptions,” he said.

His proposal would help employees “cope with the high cost of living today,” Gatchalian said.

“It is now six years since the law, RA 9504, was enacted and without doubt, the amount prescribed as personal exemptions are no longer reflective of actual cost of living,” he said.

“The rates are already outdated because they were considered the poverty threshold six years ago.”

Personal exemptions represent personal, living and family expenses claimed by an individual taxpayer as deduction from his gross earnings to arrive at the taxable income, Gatchalian said.

Under existing law, a working couple could claim combined personal exemptions of P100,000 (P50,000 each) and an additional P25,000 for each of a maximum of four dependents, for a total tax-free income of P200,000 a year or P16,667 a month.

Gatchalian’s proposal would double the tax-free income for the same couple with four dependents to P400,000 a year or P33,333 a month.

The tax relief formula that Marikina Rep. Miro Quimbo, House appropriations committee chairman, and his Senate counterpart Juan Edgardo Angara are pushing for calls for the reduction of tax rates for individual and corporate income earners.

Foundation for Economic Freedom (FEF), an organization with former senior economic ministers and undersecretaries as members, has joined the call for the government to pass a bill seeking to reduce income taxes.

“We support moves in the House and the Senate to lower personal individual tax rates, to adjust tax brackets and to slowly align corporate tax rates with the rest of the Association of Southeast Asian Nations,” FEF said.

Inflation has pushed up a majority of fixed income earners to the highest tax brackets, resulting in the country having the highest individual tax and corporate tax rates in the region, FEF said.

“Thus, in the interest of fairness, equity and competitiveness, new tax rates need to be legislated,” FEF said.

“FEF also supports moves for government to look into compensatory revenue-raising measures that are progressive and simple to administer.” 

The FEF is a public advocacy organization   with former prime minister Cesar Virata and former socio-economic planning secretary Gerardo Sicat in its board of advisers.

Foreign business groups in the Philippines have also expressed support for reducing personal and corporate income taxes, as well as raising taxes on consumption to maintain enhanced public sector revenue inflows.

Personal income tax in the Philippines currently stands at 32 percent, while corporate income tax is at 30 percent, the Joint Foreign Chambers (JFC) said.

Personal income tax in Thailand is at 35 percent (down from 37 percent in 2010), Vietnam is 35 percent, Indonesia is 30 percent, Malaysia is 26 percent (to be reduced to 25 percent in 2016) and Singapore is 20 percent.

Corporate income tax in Indonesia and Malaysia is 25 percent, Vietnam is 22 percent (down from 35 percent in 2010), Thailand is 20 percent (reduced from 35 percent in 2010), and Singapore 17 percent.

Income tax rates in the Philippines were set in 1997 with adjustments not made frequently enough to remedy a growing inequity as more salaried workers are paying the highest tax bracket, the JFC said.

President Aquino has rejected the proposal to lower income taxes without revenue compensatory measures, as it would result in billions in revenue losses.

Reducing tax rates and revenues would in the long run adversely affect employees, instead of helping them, he said.

As a compensatory measure aimed at recouping taxes to be lost from bringing down rates, the Department of Finance has proposed an increase in the level of value added tax, from 12 percent to 14 percent.