More income tax exemptions seen to cost NG P4B in foregone revenues

The government stands to lose P4.02 billion in revenues unless Congress makes tax adjustments to high-income earners to compensate for giving higher exemptions to low-income earners, Finance officials said.

The ways and means committee in Congress has approved an income tax restructuring program providing wider tax exemptions than proposed by the Finance Department.

However, finance officials said the expansion of the exemptions would end up costing the government at least P4 billion a year unless the tax structure on high-income tax earners is adjusted to compensate.

The proposed version approved on first reading intends to provide tax relief to individual income earners by reducing income tax rates while also increasing the personal and additional exemptions.

The proposed measure also provides outright exemption to certain income classes and proposed additional deductions for tuition and other expenses.

The committee approved the new tax scheme providing outright exemptions for salaried employees earning P55,000 a year or less. Employees earning over P55,000 but not over P150,000 would pay 25-percent tax of the excess over P55,000. Those earning between P150,000 and P250,000 would pay a fixed amount of P23,750 plus 28 percent of the excess over P150,000.

At present, individual income earners with no qualified tax exemptions are taxed at five percent if they are earning less than P10,000 a year. If their income is between P10,000 to P30,000, they are required to pay a basic tax of P500 plus a tax rate of 10 percent of the excess over P10,000. Those earning P30,000 to P70,000 pay a base tax of P2,500 plus 15 percent of the excess over P30,000.

Under the existing law, there are two brackets for those earning between P30,000 and P140,000 a year. This has been simplified under the proposed measure where the cut-off is set at P55,000 and anyone earning below would be exempted outright.

Individual taxpayers can also claim additional exemptions for every dependent and the proposed measure raised the exemption from P8,000 per dependent to P12,000.

On the other hand, under the proposed measure, fixed income earners with annual income between P250,000 and P350,000 would pay a basic tax of P51,750 plus 31 percent of the excess over P250,000. The next bracket is P350,000 to P500,000 which would be covered by a basic tax of P82,750 plus 33 percent of the excess over P350,000.

Those earning over P500,000 a year would pay a basic tax of P132,250 plus 35 percent of the excess over P500,000.

Existing laws require income earners with annual income of P140,000 to P250,000 to pay a basic tax of P22,500 plus 25 percent of the excess over P140,000. Those earning P250,000 to P500,000 a year pay a basic tax of P50,000 plus 30 percent of the excess over P250,000 and those earning P500,000 and above pay a basic tax of P125,000 plus 32 percent of the excess over P500,000.

The Department of Finance (DOF) had originally proposed the outright exemption of minimum wage earners from the income tax – a measure that would result to an annual loss of around P650 million a year.

The proposed measure now pending in Congress, however, would cost the government P4 billion a year, even factoring in the revenue gains from the Simplified Net Income Taxation for Self-employed Individuals (SNITS) which had been incorporated into the bill.

Without the SNITS, DOF officials said the revenue loss would have been bigger at P13 billion but the committee had decided to incorporate the SNITS into the omnibus income tax restructuring law.