RA 9504: Boon or bane?

With the rising cost of living and consequent shrinking of disposable income, the financial future of Filipino families appears to be bleak. Then came Republic Act (RA) 9504, covering the government’s latest tax relief for minimum wage earners (MWEs). With the effectivity of RA 9504 on July 6, 2008, the government sought to address the growing costs of the Filipino family by ensuring MWEs have a bigger “take-home pay.”

How does RA 9504 work

RA 9504 significantly amended 1997’s National Internal Revenue Code (otherwise known as the Tax Code). The salient features of this law boast of higher personal exemption from P25,000 to P50,000 for all taxpayers, regardless of wage rate or status (e.g., single, married or head of the family), while additional deduction for qualified dependents jumped from P8,000 to P25,000.

Moreover, MWEs (or those earning the legally mandated wage fixed by the Regional Tripartite Wage and Productivity Board, i.e. P382 per day in Metro Manila) are exempt from paying income taxes. Correspondingly, this would translate to additional take-home pay of P750 to P1,200 per month. MWEs also enjoy having their benefits like holiday, overtime, night shift differential and hazard pay which are exempt from income tax.

Impact on non-MWEs and the government

Notably, the increase in personal and additional exemption has been applied across-the-board. This means, regardless of status and wage, all employees now enjoy much higher exemption. However, the law does not fully take in hand the financial burdens of an employee earning just a peso more compared to MWEs. With this setup, low to middle-income wage earners stand to lose out to MWEs in terms of take-home pay, and yet both face the same increasing cost of living.

On the other hand, Finance Secretary Margarito Teves estimated that foregone revenues would be at P14.2 billion annually with the implementation of RA 9504. Time and again, it has been said taxes are the lifeblood of government, without which it will not be able to operate. This definitely poses a challenge to authorities as to where and from whom they will get the funds to offset the expected “lost” revenue.

RA 9504, friend or foe?

Many have expressed skepticism with the introduction of this plan to the Philippine taxation system. Critics of this law emphasized the destruction of the concept of equilibrium of work and salary, there being a desire for an employee to remain an MWE even if his or her employer offers a higher salary in case of promotion. Some even have attacked its constitutionality as it unduly discriminates non-MWEs. Presently (and even prior to the introduction of RA 9504), our tax system applies graduated rates relative to tax imposition. This means, people with higher incomes pay more taxes. The only difference is that MWEs, based on the present format, no longer need to pay taxes, while non-MWEs still have to pay taxes based on graduated rates. As such, this definitely does not solve the financial burden of low to middle-income wage earners.

Unfortunately, RA 9504 seemed to have just sprung up to immediately pacify concerns of people due to the rising cost of rice and crude futures last year. It seems apparently clear this solution has not been thoroughly thought of, going against the constitutional policy of an evolving system of taxation that should be both equitable and progressive.

For now it addresses some concerns, but this might just be a temporary solution. Until such time the government is able to reduce the cost of living gauge, implement a more equitable tax system, and (of course and most importantly) that people can be more financially prudent, we have to comfort ourselves with RA 9504.

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