House eyes P250 K annual tax-free income for workers

MANILA, Philippines - The House of Representatives is eyeing an annual tax-free income of P250,000 for millions of workers and other individual taxpayers.

The proposal for higher amount of tax-free earnings is contained in House Bill 4774, authored by Quirino Rep. Dakila Cua, who chairs the ways and means committee.

The bill is based largely on the tax reform package proposed by the Department of Finance (DOF). The Cua committee started public hearings on the measure last Wednesday.

The proposal reduces the existing seven tax brackets to six and increases the amount of taxable income covered by each bracket.

Those with annual earnings of up to P250,000 would pay no income tax.

Those earning more than P250,000 up to P400,000 would pay 20 percent of the excess over P250,000.

Taxpayers earning over P400,000 up to P800,00 would pay P30,000 plus 25 percent of the amount in excess of P400,000, while those with income over P800,000 up to P2 million would have a tax of P130,000 plus 30 percent of the excess over P800,000.

Those with compensation of more than P2 million up to P5 million would pay P490,000 plus 32 percent of the amount in excess of P2 million while those earning more than P5 million would be taxed at P1.45 million plus 35 percent of the excess over P5 million.

Under the present law, those earning over P500,000 after deductions pay an income tax of P125,000 plus 32 percent, which is the maximum rate, of the excess over P500,000.

Thus, an employee with a taxable income of P600,000 pays P125,000 plus 32 percent of P100,000 or P32,000, for a total of P157,000.

Under the new schedule contained in the DOF proposal and Cua bill, such income would fall in the third tax bracket and would be subject to a tax of P30,000 plus 25 percent of P200,000 or P50,000, for a total of P80,000. He would thus save almost half of his current tax payment.

Deputy speaker and Marikina Rep. Romero Quimbo, the original proponent of income tax reduction in the House, said the higher amount of tax-free income means that aside from minimum wage earners, more workers would be exempt from income tax.

“P250,000 translates to a monthly tax-free income of P20,833, although I am proposing it should be P300,000 or P25,000 a month,” he said.

At present, a working couple’s tax-free income amounts to P200,000, which comes in the form of deductions – P50,000 for each spouse and an additional P25,000 for each of a maximum of four dependents, Quinto noted.

“The deductions will no longer be allowed because the tax will be based on gross income,” he said.