For ordinary workers
For ordinary workers
by: WALTER L. ABELA, JR.
While the government is gearing to meet its revenue targets though several tax measures forming part of its legislative agenda, taxpayers, particularly ordinary employees, are wondering - are there any measures which will relieve them from the burden of these taxes?
Unlike ordinary corporations where a number of deductions are allowed against gross income, individual employees are only entitled to personal exemptions and additional exemptions. Upon the enactment of the Comprehensive Tax Reform Program (CTRP) of 1997 which took effect on January 1, 1998, the tax brackets of individual taxpayers were broadened and the top marginal income tax rate of 35% was reduced to 32%. The CTRP also excluded the individual taxpayer's social security contributions and premium payments on health and hospitalization insurance from his taxable gross income, and significantly increased the basic personal exemptions. Despite the clear intention of these provisions to provide some kind of relief to individual compensation income earners, have these significantly improved their plight?
I believe that while the government is sincere in its drive to attain the desired economic growth, it should be sensitive to the plight of ordinary employees, the fixed-income earners, who would also like to savor the worth of their income. Compensation income earners constitute the bulk of consumers, and consequently the ones who ultimately shoulder the effect of tax increases. Will the peso value of their take home pay be able to keep in pace with the increasing price of consumer products?
It is noteworthy to mention that, currently, the Senate ways and means committee is not only evaluating the possible retention of a single VAT rate but also reviewing the possible reduction of the individual income tax. Senate Bill 1917 of Sen. Ralph Recto proposes a 20% cut in the income tax while Senate Bill 1198 of Sen. Juan Ponce Enrile envisions a 50% cut. I'm keeping my fingers crossed that these bills will continue to sail smoothly without being "cut" and ultimately drowned under a barrage of cross-fire interpellations.
In the House of Representatives, Rep. Juan Ponce Enrile, Jr. also timely introduced House Bill 2843 increasing the allowable personal and additional exemptions, in addition to his House Bill 2841 reducing the income tax rates of individual taxpayers. HB 2841 focuses more in reducing by 50% the marginal income tax rates. The top rate of 32% is applicable only if the taxable income of an individual taxpayer is over P12 million. For those with taxable income of more than P500,000 but less than P1 million, the applicable income tax rate is only 17.5% (compared to 32% under the current tax law). Wow, that would be a great treat for employees under this income bracket! They can look forward to taking home P82.50 out of every P100 that they will receive (instead of only P68 under present rates).
With regard to HB 2843, the allowable and additional exemptions which can be availed of by individual taxpayers are substantially increased by at least 100%.
Moves to increase personal exemptions granted to individuals are long overdue. The current rates which were set in 1997 have been left behind by the series of increases in living expenses. The Tax Code actually authorizes the National Economic Development Authority to recommend adjustments to the 1997 rates, but, given the expected revenue loss, the executive branch is understandably not keen on exercising such power.
Will legislators display the same vigor and enthusiasm in approving these tax relief measures for ordinary employees as they did in approving the increase of the VAT rate from 10% to 12%? Previous attempts to "correct" income tax rates on compensation income earners have been rejected because of the consequent revenue loss. I believe that
any decrease in the individual taxpayers' income tax rates will not purely result to a reduction of government revenues since any increase in the take home pay will also spent by the taxpayers for additional goods and services which are subject to consumption taxes like VAT and excise tax. Thus, any savings from the possible cut in individual income tax rates will still be spent within the Philippines and not siphoned out. I doubt if majority of ordinary employees maintain Swiss bank accounts.
To a certain extent, however small, it is also hoped that the tax cut will also translate to a more content labor force and consequently improved productivity, reduced demand for social services (health, food subsidy, education), improved quality of life for today's children who will be tomorrow's responsible citizens, and so on.
Ordinary employees have long awaited the passage of legislation that will at least preserve the value of their hand-earned take home pay. Will they this time be allowed to bring home the bacon?
(The author is a senior tax manager at Punongbayan & Araullo, member firm of Grant Thornton International. For comments and inquiries, e-mail Walter.L.AbelaJr@pna.ph or call 886-5511.)