“There are only two things certain in life: death and taxes.” - Benjamin Franklin
Our country’s current tax rate system still follows the 1997 National Internal Revenue Code of the Philippines, wherein an employee earning Php500,000 a year are subject to the same tax rate of 32 percent as his company’s CEO who earns Php20 million a year; a two-decade-old tax system! It has never been adjusted, even to inflation ever since. Also, we currently have the second highest personal and highest corporate income tax systems among the Association of the Southeast Asian Nations (ASEAN) economies.
Records from the Bangko Sentral ng Pilipinas (BSP), prices of goods and services have increased by110 percent between 1997 and 2012 while the individual income tax brackets have remained unchanged!
Whatever you may think of our current President Rodrigo Duterte, this is one of the most controversial (in a good way) and one of the policies that will truly change the lives of majority of Filipinos for the better.
House Bill No. 4774 or the proposed “Tax Reform for Acceleration and Inclusion Act,” drafted by the DoF and filed by committee chairman Rep. Dakila Carlo E. Cua is now in Congress. This initiative has even been endorsed by 19 former secretaries and undersecretaries of the DoF and the National Economic and Development Authority (NEDA) have given their full support as well to the DoF’s tax reform program to correct the tax system’s structural weaknesses and serve as a tool to decisively attack poverty and achieve inclusive growth.
Personal Income Tax
Under this package, taxpayers earning up to Php250,000 a year will be tax exempt, also those earning over P250,000 but not over P400,000 would pay a fixed tax of 20 percent of the income in excess of P250,000;while those earning Php400,000-800,000 will pay Php30,000 plus 25 percent of gross income in excess of Php400,000.
Taxpayers earning Php800,000 to Php2 million annually will pay Php130,000 plus 30 percent in excess of Php800,000 while those earning Php2-5 million, are to be taxed Php490,000 plus 32 percent of annual gross income in excess of Php2 million.
The “ultra-rich” earning more than Php5 million annually will be taxed Php1.45 million plus 35 percent in excess of Php5 million. This is only the tax brackets for 2018 and 2019 in which has a tax schedule targeted to start on July 1 this year.
For 2020 onward, the proposed tax brackets are:
* Earnings not over Php250,000 is tax exempt;
* Fixed tax of 15 percent of income above Php250,000 but not over Php400,000;
* If earnings are over Php400,000 but not over Php800,000; fixed tax of Php22,500 with additional 20 percent for income above Php400,000;
* Over P800,000 but not over Php2 million will pay an excess tax of Php102,500 with additional 25 percent for income above Php800,000;
* Earnings over Php2 million but not over Php5 million will pay a fixed tax of Php402,500 with an additional 30 percent for income above Php2 million;
* Earnings over Php5 million pay a fixed tax of Php1,302,500, with an additional 35 percent for income above Php5 million.
As per the bill, after 2020, the taxable income levels in the above schedules shall be adjusted once every five years through rules and regulations issued by the DOF.
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The writer is an RFP® - registered financial planner of RFP PH, Licensed Real Estate Broker and Director of CERTA, Inc., a family estate planning and investment advisory firm. To know more about financial planning and training services, please visit www.certa.ph