Vol. XXI, No. 200 [ Business World Online ]
Tuesday, May 13, 2008 | MANILA, PHILIPPINES
Exemptions raised for wage earners; stricter limits for professionals
A BILL INCREASING the tax-exempt income of workers was approved by the House of Representatives yesterday, with lost revenues to be made up via stricter limits for professionals.
The bill amends the Tax Code by increasing the personal tax exemption to P50,000 for all workers, whether single, married or a breadwinner. It is currently at P20,000 for single workers, P25,000 for a family head, and P32,000 for married individuals.
A total of 192 congressmen voted in favor of House Bill (HB) 3971 while three voted "no."
"The proposed measure seeks to grant tax relief to all wage earners for they are greatly affected by supply prices, which substantially erodes income, consequently weakening the purchasing power," said Antique Representative Exequiel B. Javier, chairman of the House ways and means committee.
HB 3971 consolidated 20 separate bills. Aside from the increased tax exemption, it also increased exemptions for up to four dependents, to P25,000 each from P8,000. However, the fourth child born after Dec. 31, 2010 and a third child born after Dec. 31, 2012 cannot be claimed as dependents.
"For the family of six with both spouses as wage earners, the total exemption both personal and additional is P200,000," Mr. Javier said.
He said legislators decided to cover not only minimum wage earners but all individuals because doing otherwise would be unfair. He said only five regions would benefit from the original proposal.
Mr. Javier said the increased tax exemptions would result in a revenue loss of P11.5 billion, thus "it is mandatory to package the bill with the SNITS provision."
Also adopted in the tax measure was the Simplified Net Income Taxation Scheme, which would simplify the income tax for self-employed individuals but limits allowable deductions.
Under the SNITS, individuals engaged in trade, business and the practice of a profession, such as lawyers, doctors, dentists, certified public accountants, architects, artists and athletes, may deduct a standard 40% from gross income instead of the current 10%.
At only 10%, taxpayers would rather itemize their deductions via various business expenses that tax authorities found hard to check. For those who do not want the 40%, the itemized listing is stricter under the proposed bill.
"The potential revenue loss from the increased tax relief will be cautioned by the SNITS for self-employed individuals because it would limit the allowable tax deductions to special items ... In fact, based our records ... the government is expected to generate a revenue gain of almost P1 billion," Mr. Javier said.
He explained that under the Internal Revenue Code, self-employed individuals are taxed the same rate as wage earners. "However, unlike the wage earners, this self-employed individuals and professionals are entitled to itemized deductions from their gross income."
"The taxation of these taxpayers is the weakest link in the current tax system. It engenders not only revenue leakages to fictitious public utility deductions but likewise unfairness in items of tax burden," he said.
While 80% of government revenues come from individual wage earners, only 20% is collected from self-employed individuals and professionals, Mr. Javier said. "And while the effective tax rate of wage earners is 15.25%, for the self-employed and professionals it is measly 1.14%, because these self-employed individuals are usually over-deducting," he said.
Under the approved measure only the following deductions will be allowed:
- reasonable allowances for salaries of officials and rank-and-file employees occupying administrative and selling positions;
- reasonable allowances for supplies, telecommunications, electricity, fuel, light and water;
- reasonable allowances for rentals;
- interest paid or accrued within a taxable year on loans contracted from accredited financial institutions; and
- taxes paid or incurred within the taxable year in connection with the taxpayer’s trade, business or profession. — ETM
