The labor sector has been one of the most solid, dynamic and influential groups in the Philippines. Some of our more seasoned leaders and politicians had humble beginnings advocating the improvement of the lives of those in the workforce.
As we observe Labor Day and pay tribute to our working class, many are hopeful that the much anticipated lowering of the personal income tax will soon become a reality.
With inflation currently on the rise, our income tax system has become antiquated so that Filipinos now shoulder one of the most burdensome personal and corporate income taxes around the world.
No wonder the labor sector hailed the increase in the tax exemption cap on the 13th month pay and other workers’ benefits to P82,000, from P30,000.00, under Republic Act No. 7833. The previous administration, however, was not able to come up with an updated tax package.
It is not surprising, then, that the tax reform program that the current administration intends to implement has been eagerly anticipated by Filipinos, especially those belonging to the working class.
Deliberations on House Bill No. 4774, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which seeks to amend select provisions of the National Internal Revenue Code of 1997, have recently gained headway at the House of Representatives. One of its key features aims to reduce tax on the lower personal income brackets while increasing the tax rates applicable to those in the higher income brackets.
In other words, TRAIN supposedly aims to promote equity in our tax system by increasing the disposable income of the lower and middle classes, while making those in the higher income groups shoulder more than they do in the present system.
In the proposed amended tax brackets, individual taxpayers with annual income not exceeding P250,000 shall be exempt from payment of income tax. Meanwhile, those in the highest personal income tax bracket, or those with an annual income of more than P5,000,000, shall be required to pay P1,450,000 + 35 percent of the amount in excess of P5,000,000 in 2018, and P1,302,500 + 35 percent of the amount in excess of P5,000,000 in 2019.
Since HB No. 4774 would increase the threshold of the minimum taxable amount, this would in effect likewise amend Republic Act No. 9504, which exempts statutory minimum wage earners only from payment of income tax, and consequently from withholding tax on compensation.
As the minimum wage is reviewed and increased from time to time by the Department of Labor and Employment (DOLE) through the National Wages and Productivity Commission (NWPC), it is vital that a provision mandating the automatic review and amendment of the threshold amounts as tax bases be included in the new law. Remember that a good 20 years have passed since the Tax Code was enacted. As such, it is not far-fetched that we should find ourselves in the awkward situation where minimum wage earners have already breached the minimum taxable amount specified in TRAIN.
It is similarly important that our legislators evaluate and closely scrutinize the effects of the proposed increases in excise taxes on fuel and automobiles, as well as the proposed removal of value-added tax (VAT) exemptions currently being provided to certain sectors.
While it is clear that many of those in the workforce who provide the needed manpower to turn the wheels of our economy, particularly those in the lower and middle classes, will receive an increased take-home pay under the proposed tax reform, it is best that they, too, enjoy a bigger chunk of the fruits of their labor by having a stronger purchasing power rather than spending their hard-earned money on the most basic of their needs at inflated prices.
As we celebrate and recognize the importance of those in the labor force, the workhorses and pillars of our nation, we can only hope that the famous slogan of the venerable President Ramon Magsaysay—“Those who have less in life should have more in law.”—will ultimately be considered by our legislators in enacting TRAIN.
The author is a senior manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd., a member firm of Deloitte Touche Tohmatsu Limited—comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.