I recently attended a leadership summit where the dashing BIR Deputy Commissioner showed the proposed tax amendment on the individual taxation that was undergoing a Senate hearing. The new tax table, shown in comparison with current tax rates, looks like this:
Employers, employees and salary negotiators alike must keep this table in mind as they strategize on salary structure, compensation upon promotion or for entry positions, and discussions on behalf of union members and talents (for headhunters). Here are the ‘whys,’ without even thinking much:
It doesn’t take a genius, so to speak, to understand that anyone receiving the lower end of the compensation brackets will take home much less than someone on the higher end of the preceding bracket after considering the tax rates.
Although overtime is slowly getting to be a thing of the past as “shifting” inches into efficiency strategies of companies, this, too, must be seriously analyzed by employers. How will this be factored in for employees moving from one tax bracket to the next, noting as well that managers do not get paid after hours?
The highest tax bracket of 35 percent is nonchalantly a thing of taxing the “rich.” While P5 million sounds quite a sum to many of us, the “boss” (on the assumption that those receiving this much are at least managers) must be whimsical in handling his finances after that 3-percentage point increase in his tax bracket. To many bosses, this 3-percentage point increase represents his real savings. For the P2 million annual salaried individuals (net of personal deductions), I am pretty sure it is somewhat disheartening to see it become P1.36 million after applying a 32 percent tax rate. But it is what it is, prior to the proposed new tax rates.
Let’s take a little tour into the likely life of a boss, or the so-called “rich.” At P5 million, his take-home pay is somewhere around P245,000 each month. He probably has a mortgaged house-and-lot or equivalent, a car being paid over four years, a spouse and one kid of school age. He incurs monthly expenses of somewhere around P157,000, including school expenses, decent clothes for office, amortizations for car, house and lot, regular medicine supplies, utilities, fitness and gasoline. That leaves the rich boss with P88,000.
In projecting a boss image that must give employees some aspirations to become a boss themselves, the boss has to level up his brand, not just intellectually, but also physically and visually, thus incurring additional expenses. These may include occasional treats, that gown during company events, that tailored suit during client presentations, that branded bag employees dream they can have when they become bosses as well, that occasional vacation to de-stress, and the amount of expected donations and ‘ninong’ or ‘ninang’ duties. In the end, the savings jar may at times be way too low, even just for emergencies.
With the extended family culture in the Philippines, a boss, or any regular employee for that matter, normally extends support beyond his own household. Hence, how easy do you think it would be for someone with P5 million in annual income to put P1.75 million in government coffers (versus another one earning P2 million in annual income and paying P640,000 in taxes)? Yet he lacks a home he dreams about, spends nearly two hours on a 12-km ride, pays for his very basic medical needs, fears for his life on a daily basis, and probably wonders how much the residents of Forbes, Dasmariñas, Ayala Alabang, Westgrove, and many other exclusive villages pay for their taxes, or better yet, who lives there.
If and when the new rates come to fore, should it be our decent expectation for government services and national infrastructure to improve? We can only hope, one that springs eternal. Should I even wonder whether the government funds are spent not wisely but for the benefit of our citizenry? Aren’t we all getting less?
Che Javier is the assurance lead partner for the consumer and industrial products and services industry of Isla Lipana& Co./PwC Philippines. Email your comments and questions to firstname.lastname@example.org. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
CHE M. JAVIER