Vol. XXI, No. 206 [ Business World Online ]
Wednesday, May 21, 2008 | MANILA, PHILIPPINES
THE SENATE ways and means committee yesterday formally endorsed the bill granting tax relief to workers by increasing their tax-exempt earnings, but dropped the proposal of the House of Representatives to limit tax deductions claimed by professionals, which was supposed to make up for lost revenues.
The Department of Finance, meanwhile, clarified that it won’t oppose the Senate version of the bill as long it will raise more revenues.
Senate Bill No. 2293, which had been signed by 12 senators, is similar to House Bill No. 3971 except for the Finance department-backed Simplified Net Income Taxation Scheme (SNITS).
The Senate bill gives professionals and self-employed individuals the option of deducting a uniform 40% from gross sales or receipts to arrive at taxable income subject to the income tax, instead of itemizing deductions. Under the tax code, the optional standard deduction is only 10%.
The standard 40% deduction will also apply to corporations, which are subject to a 35% income tax, under the Senate bill.
For those who still want to itemize deductions, the list of allowable deductions was unchanged.
The House version, which has been approved on third reading, adopted the SNITS, which allows the 40% optional standard deduction only for professionals and self-employed individuals. For those who do not want the optional deduction, the list of allowable deductions has been trimmed.
Finance officials wanted the SNITS — which will cover individuals engaged in trade, business and the practice of a profession such as lawyers, doctors, dentists, certified public accountants, architects, artists and athletes, among others — included in the tax relief bill as it would offset losses from higher tax exemptions for wage earners.
Under existing rules, professionals can escape paying higher taxes by reducing their taxable income through padded expenses, which tax authorities find difficult to verify.
The Senate ways and means committee chief, Senator Francis Joseph G. Escudero, sought for the speedy approval of his version of the bill, saying it will also offset losses from higher tax exemptions.
Mr. Escudero said the government will gain P780 million if the Senate version is passed. The House version is estimated to generate P1 billion in additional revenues annually courtesy of SNITS.
The Senate and House bills are similar in that the tax-exempt income of workers has been raised to a uniform P50,000. The current exemption is P20,000 for single workers, P25,000 for a family head, and P32,000 for married individuals.
The additional exemption for up to four dependents was raised to P25,000 for each dependent, from P8,000 previously.
"As much as we want to maximize the exemption because of the continuous rising prices of basic commodities, we have to see the need of the government in terms of revenue generation," Mr. Escudero said in sponsoring the bill. "This is the best we can give to our people."
Senator Juan Ponce Enrile, chairman of the Senate committee on finance, said the measure will "effectively help our working class."
Antique Rep. Exequiel B. Javier, chairman of the House committee on ways and means, said in a telephone interview that the House will study the Senate version but will insist on the SNITS.
"Let them (Senate) pass their version first and then we will see what can be compromised in our (House) version and what cannot be. Maybe the best way is to let this bill pass through a bicameral conference," he said.
"Give us time to further study the Senate version, because they are claiming that the government is expected to gain big revenues in their version of the bill. I wonder however how they will do that. There may be other sectors that would greatly shoulder the burden," Mr. Javier added.
He pointed out that the SNITS proposal is better, as it limits tax deductions for those who do not want the 40% standard deduction.
"In our SNITS provision we limit the allowable deduction in the taxable income of the self-employed and professionals into only 8 categories. Since they did not adopt the SNITS provision, these individuals can still enjoy the practice of itemizing their deductions without limit. Who would then avail the optional 40% OSD if they can instead declare as many deductions as they can?" he asked.
He also said the proposal for a 40% optional standard deduction for corporations, which originated from the Senate, is against the rules of Congress since all tax measures must emanate from the House.
In a chance interview, Finance Secretary Margarito B. Teves said he is in favor of the tax relief bill, but said: "Our concern is with the bottom line, that there would be no added deficit to the government. They (Congress) can use whatever system they decide as long as there would be no revenue losses," said Mr. Teves.
Finance department research director Ma. Lourdes B. Recente, meanwhile, said the department supports the proposals "as long as it will give revenues to the government," correcting Tuesday’s BusinessWorld story that the department will oppose the Senate version of the bill if it will not include a provision limiting the allowable tax deductions claimed by self-employed individuals and professionals.
Finance Undersecretary Gil S. Beltran said in a telephone interview that the department is "passive" on the Senate version since based on a discussion with the members of the Senate committee on ways and means last week, the government is expected to gain additional revenues from the measure.
"We are amenable with either the House or Senate version since based on our initial comparison of the two measures, we found that the revenue to be gained is almost neutral," he said. — B.U. Allauigan and E.T. Marcelo
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