Vol. XXI, No. 233-A [ Business World Online ]
Saturday, June 28, 2008 | MANILA, PHILIPPINES
Minimum wage earners cannot claim a full year’s benefit from a new law exempting them from income taxes, with the Bureau of Internal Revenue (BIR) on Friday announcing that the perk will only take effect starting next month.
The law, which also provides an increase in personal and additional exemptions for individual taxpayers, is not retroactive to January 1 this year, BIR deputy commissioner Nelson M. Aspe said in a statement.
He said Republic Act 9504, signed by President Gloria Macapagal-Arroyo earlier this month, will only take effect on July 6, or 15 days after its publication in at least two newspapers of general circulation.
As such, only half the total amount for personal and additional deductions can be availed of for purposes of computing the income tax for calendar year 2008. Starting January 2009, individual taxpayers can avail of the full exemption benefits and additional deductions.
"The BIR is doing its best under its resources to draw up revenue guidelines as fast as it can; it is wary about numerous and critical questions that are in store for [clarification] under the new law," Mr. Aspe said.
The tax bureau will conduct a public hearing in July 1 regarding proposed revenue regulations. Mr. Aspe said that the public hearing was "extremely important" if "hassle-free procedures" are to be put in place.
The law formalizes the income tax exemption of minimum wage earners in the private and public sectors. Their income tax exemption extends to wage and work-related benefits such as holiday, overtime, night shift differential, and hazard pay.
Income outside that of compensation remains taxable.
The BIR said more than half a million minimum wage earners in both the private and public sectors will be freed from paying income taxes.
"The key challenge for the BIR and the government is to keep the measure revenue-neutral, considering current pressures brought about by the global economic slowdown and high oil and food prices," Mr. Aspe said.
Tax exemptions under the new law will result to an additional take-home pay of P34 per day or P750 per month for minimum wage earners.
Personal exemptions of single taxpayers will go up to P50,000 from P20,000-32,000 currently. The deduction for each qualified dependent not exceeding four, will be raised to P25,000 from P8,000.
While this will cost the government around P14.25 billion in foregone revenues, the law imposes optional standard deductions (OSD) that are expected to generate P15.03 billion to make the scheme revenue-neutral.
The OSD rate will be raised to 40% of gross sales or gross receipts from 10% currently. The BIR said the OSD is expected to encourage businesses in the underground economy to operate "above-ground".
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