Government to tax 13th month pay, bonuses

MANILA, Philippines - Workers, corporate executives and other individual taxpayers may no longer enjoy tax exemption on their annual bonuses.

That is, if the House of Representatives and the Senate approve the tax reform package submitted to Congress this week by the Department of Finance (DOF).

Under a law passed by the previous Congress and signed by then president Benigno Aquino III, annual bonuses of up to P82,000 are exempt from income tax.

Private sector workers get a mandatory 13th-month pay. Apart from this, many of them are given Christmas bonus.

Meanwhile, government personnel receive a mid-year bonus equivalent to one-month salary and a year-end productivity incentive aside from the 13th-month pay.

The current administration wants to take away the tax exemption on the mandatory additional one-month salary, bonuses and incentives.

The DOF is seeking the repeal of provisions of the Tax Code that exempt from income tax the 13th-month pay, Christmas bonus, productivity incentives and other benefits up to a maximum amount of P82,000 a year.

Deputy speaker and Marikina Rep. Romero Quimbo, who chaired the committee on ways and means in the previous Congress, said the DOF also wants to scrap the personal tax exemptions now being enjoyed by working spouses.

He said the law gives an employed spouse a personal exemption of P50,000, plus P25,000 for each of a maximum of four dependents, for a total of P150,000.

The other spouse, if she or he is employed, is entitled to another P50,000 in personal exemption, he said.

Workers and other individual taxpayers would lose all these exemptions, plus the zero tax on their 13th-month pay, Christmas bonus, incentive and other benefits, he stressed.

However, Quimbo pointed out that the DOF is proposing that a gross income of P250,000 a year, or P20,833 a month, would be tax-free.

He estimated that despite the recommended tax-free amount of earnings, millions of workers in the private and public sectors would still pay income tax.

“For instance, the lowest-paid teacher, who holds Salary Grade 11, receives a basic monthly salary of P19,077, plus a mid-year bonus and a 13th-month pay, for a total of P267,078 a year. They will obviously be subject to tax under the DOF tax reforms,” he said.

This means that about 700,000 public school teachers and all government personnel holding Salary Grade 11 and higher will pay income tax, he said.

Navotas Rep. Tobias Tiangco has proposed in a bill that monthly earnings of up to P30,000 be spared from taxation.

The DOF is also proposing that the 20-percent tax exemption enjoyed by senior citizens and persons with disability on certain goods and services, plus their exemption from the 12-percent value added tax, be taken away.

However, Speaker Pantaleon Alvarez has said he was not amenable to scrapping the exemptions of senior citizens and disabled persons.  

Good for economy

The DOF sees the proposed income tax reform measure of the administration resulting in a simpler, fairer and more efficient tax system.

In a recent Tax Reform Agenda forum hosted by the Senate, DOF Undersecretary Karl Kendrick Chua said that the proposed reforms in the tax system can “promote investment, job creation and poverty reduction.

“It will also fund government projects in infrastructure, education, health and social protection,” he said. “The proposed tax policy reform program which aims to lower the tax rates and increase the base of taxpayers is included in President Duterte’s 10-point socioeconomic agenda.”

With the current rates based on values prevailing decades ago, Chua said that the updating of the income tax system would be reflective of modern economic realities and take into account inflation over the years.

Based on the DOF’s proposal, the first year of implementation would result in the following adjustments in the income tax rates:

• Individuals with an annual income of less than P250,000  =  no income tax

• With annual income between P250,000 and P400,000 = 20 percent on the excess over P250,000

• With annual income between P400,000 and P800,000 = P30,000 + 25 percent on the excess over P400,000

• With annual income between P800,000 and P2,000,000 = P130,000 + 30 percent on the excess over P800,000

• With annual income between P2,000,000 to P5,000,000 = P490,000 + 32 percent on the excess over P2,000,000

• With annual income over P5,000,000 = P1,450,000 +  35 percent on the excess over P5,000,000.   

For the second year of implementation and beyond:

• With annual income less than P250,000  =  no income tax

• With annual income between P250,000 and P400,000 = 15 percent on the excess over P250,000

• With annual income between P400,000 and P800,00 = P22,500 + 20 percent on the excess over P400,000

• With annual income between P800,000 and P2,000,000 = P102,500 + 25 percent on the excess over P800,000

• With annual income between P2,000,000 to P5,000,000 = P402,500 + 30 percent on the excess over P2,000,000

• With annual income over P5,000,000 = P1,302,500 + 35 percent on the excess over P5,000,000.

Also included in the tax reform package is the proposed lowering of the corporate income tax rate to 25 percent and the reduction of property and capital income taxes.

New taxes

In order to recover the revenue that would be lost with the adjustments, the DOF would be imposing new taxes on sweetened beverages, chips, jewelry, mining, carbon, ganbling, lottery and casinos.

The DOF is also looking at increasing the excise tax on alcohol and tobacco. – With Marvin Sy