A MEASURE providing relief to minimum wage earners by exempting them from income tax was signed into law yesterday.
President Gloria Macapagal Arroyo gave her imprimatur to Republic Act 9504, which will benefit minimum wage earners in the private sector and their counterparts in the bureaucracy.
It formalized a tax ruling released two years ago that was part of a non-wage package promised by the government to help mitigate the impact of a new sales tax.
The incentive, approved by Congress last month, also increases personal exemptions for individual taxpayers and additional deductions for qualified dependents.
The individual exemption will be raised to P50,000 from P20,000 for single workers, P25,000 for a head of family, and P32,000 for married individuals.
The additional exemption for up to four dependents was raised to P25,000 for each from P8,000 currently.
Sen. Francis G. Escudero, one of the authors of the measure, said the law would increase the take-home pay of workers.
"If you pay taxes and you are a minimum wage earner, it would increase your daily earnings by more or less P34. It can be higher if you have overtime, hazard pay or night shift differential," he said in Pilipino.
Mr. Escudero said the government would lose around P14.25 billion a year but added that this could be recovered if the Bureau of Internal Revenue (BIR) improved its collection efficiency.
"To recover these foregone revenues, our formula is simple. We just have to improve the collection system of BIR by removing discretion. Remove discretion and you remove corruption," he said.
Finance Secretary Margarito B. Teves said this was easier said than done.
"The challenge is still of course the implementation, to generate the additional revenues from the optional standards from the individuals as well as the corporations. So that is now the challenge for us is to generate the compensating revenues to arrive at a revenue neutral situation," he said in a chance interview.
"It’s not going to be easy so we just have to work very hard on it and we have to convince our individual taxpayers and corporations to assist us."
The law also provides professionals, self-employed and corporations the option of doing away with the process of itemizing deductions supported by receipts by simply deducting a standard 40% from gross earnings.
House Ways and Means Committee Chairman Exequiel B. Javier expressed optimism that the simplified system would bring revenue gains for the government.
"We expect a revenue gain of about P1 billion, so this is a revenue gain because of the simplified taxation for corporation and individuals," he said.
The law will take effect 15 days following its publication in at least two newspapers of general circulation.
Nelson Aspe, BIR deputy commissioner for operations, told BusinessWorld the law’s implementing rules and regulations could be finished within a month.
"Companies will ask the wage boards how much is the minimum wage in their region to determine who will be covered by the income tax exemption. This will involve information gathering. Every employer will coordinate with the regional wage boards," he said.
Mr. Aspe clarified that minimum wage earners with deficiencies from 2006 to 2007 may still have to settle their income tax dues as the new law did not contain a provision absolving them from the liabilities.
"The BIR cannot declare an amnesty. Those minimum wage earners who did not file their income tax return will still be subject to inquiry," he said.
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