Withholding tax exemption includes government workers

Minimum wage earners in government will be included in the withholding tax exemption and this is expected to cost the government an additional foregone revenue of 150 million.

In a memorandum to the President, Finance Secretary Margarito B. Teves said the pending revenue regulation would also allow employers to make certain deductions when they stop withholding the taxes from minimum wage employees.

Effective Jan. 1, 2006, Teves said privately-employed and government-employed minimum wage earners would both be eligible for exemption but they are still required to pay their income taxes at the end of the fiscal year on April 15.

"They are proposed to be relieved only from the requirement of withholding," Teves said. "Unless legislation is made, there is no legal basis for government to exempt them from income tax altogether."

DOF estimates an annual revenue loss of P596.04 million with the inclusion of government workers in the exemption from withholding taxes, Teves said.

The total annual revenue foregone was broken down into P445 million from private minimum wage earners and P150.7 million from government workers belonging to salary grades 1 to 3.

However, Teves said the amount was less than one percent (0.66 percent) of total revenues coming from income taxes paid by compensation income earners.

Once implemented, Teves said compensation incomes where no income taxes are withheld shall be allowed as deduction from the employer’s gross income when the employer executes a declaration showing actual receipt of wages and salaries.

The exemption is part of the Arroyo administration’s non-wage benefit package that the President is planning to announce before Christmas.

At present, the source said only about 13 percent of the country’s minimum wage earners are still covered by the tax net.

The majority of minimum wage earners no longer pay the income tax anyway since most of them had qualified deductions that ultimately exempt their net income from taxation.

Teves said Congress should enact a law that would exempt minimum wage earners from income taxation altogether rather than looking away when they do not pay their taxes due.