SEN. Juan Edgardo Angara is proposing a reduction on individual income taxes from the current highest tax rate of 32 percent for incomes above P500,000 to 25 percent by 2017.
Angara, the chairman of Senate Committee of Ways and Means, is also seeking adjustments in the other individual income tax brackets.
“[Senate Bill 2149] aims to lower and update the bracket of our income tax because the current bracket that we have has been largely unchanged since the 1997. So for example, P500,000, if that’s your annual income, that’s worth 10 million now. If you were earning 500,000 in the 1970s, that’s worth ten million now,” Angara told reporters during a sideline interview at NLEX Tara Na Sa Norte travel fair in Makati.
“The value of your money is devaluating over the years because of inflation so you shouldn’t be charged with rates that are for a rich person. So you should have enough for the family, to educate your children, to save,” Angara added.
Angara is looking to compress the net taxable income brackets from the present seven to five, and to lower tax rates across-the-board.
Currently, an annual net income after allowable deductions of P10,000, which is the lowest in the tiers, is taxed 5 percent.
Under Senate Bill 2149, the “no tax zone” will be raised to P20,000.
As to the next bracket under his proposal – from P20,000 to P70,000 – he wants a tax of 15 percent in 2015, to go down to 13 percent in 2016, and further to 10 percent by 2017.
Currently, a net taxable income of between P30,000 and P70,000 is taxed P2,500 plus 15 percent of the amount over P30,000.
Although Angara is aware of estimated annual revenue loss of P19 to P40 billion from reduced individual income rates, he said that if withholding tax is converted into disposable income, then it could be recouped through the Value Added Tax on goods.
“If part of the salary intended to be remitted to the BIR (Bureau of Internal Revenue) will now be spent for goods, then it can still be recaptured through the tax on the goods bought,” Angara explained.
“If people had more money, they’d be spending more. It will be also good for the economy. It is always better to plow money back in circulation, where it can stimulate the production and consumption of goods. Instead of government doing the spending for the people, let the people do the spending themselves,” he added.
According to the senator the bill has the support of the business community.
The bill’s explanatory note said the proposed amendment is part of twin measures to reduce the country’s income tax rates for individuals and corporations in preparation for the Association of Southeast Asian Nations (ASEAN) Integration.
Although ASEAN does not mandate member-countries to amend their income tax schedules, it is highly expected that human capital would flow to where it could earn best.
“In order for the Philippines to attract human capital and to prevent the migration of our own, it is imperative that we reduce the existing income tax rates while we maintain the progressivity of our income tax system, as mandated by the 1987 Philippine Constitution,” Angara said.
When the ASEAN Economic Community Declaration was signed in 2007, some member-states began to lower their corporate and individual income tax rates, with further reductions in the subsequent years. Next to Thailand and Vietnam, the Philippines has the highest top rate at 32 percent.