JULY 14, 2016

NR # 4261

Bill to lower income tax rates

Rep. Arthur Yap (3rd District, Bohol) is seeking to reform the current personal
income tax system to effectively reduce the taxes on low-income earners, which will allow
them a higher net income and increase their purchasing power.
Yap said his proposal will also ensure the government will be able to collect a larger
share of income from those who can afford to pay more.
For both objectives, no additional financial burden is needed to be imposed on
employers. Effectively, the income tax reform will create a more equitable and just tax
system for a majority of Filipino taxpayers while ensuring the government is still able to
raise revenues for its important programs, said Yap.
Yaps proposal is embodied in House Bill 39 which seeks to amend Section 24 (A)
(1) of Republic Act no. 8424, otherwise known as the National Internal Revenue Code of
1997, as amended by RA 9504.
Yap, a former Agriculture Secretary during the Arroyo administration, said the
country has achieved a status of an emerging economy, steadily growing with the
government expecting a full-year Gross Domestic Product (GDP) growth of 6.5 percent to
7 percent in 2014.
But as the national economy move towards inclusive growth, Yap said the
government must create the necessary mechanisms to enable the vast majority of Filipino
wage-earners to share and enjoy the fruits of economic growth.
Ordinary Filipinos are still reeling from the pinches of rising prices of
commodities and high income taxes, lamented Yap.
The lawmaker explained that one big issue against the present law, Republic Act
9504, is its failure to review and update the decades old income tax rates under Section 25
(A) 1 of RA 8424 or the NIRC Law.
This created an absurd scenario wherein an employee, who graduates from earning
minimum wage or earnestly only a little over said floor wage, jumps to paying a very high
rate of tax payable, said Yap.
For instance, Yap said a minimum wage earner in Metro Manila would earn about
P150,072.00 per annum (P481 X 26 working days X 12 months). Under the old tax rates,
said person is liable to pay taxes at the rate of P22,500.00 + 25% of the excess over
P140,000. Now under RA 9504, he is exempt from paying taxes.

If said person earns just a peso higher than the minimum, example P481 per day,
Yap said his annual gross income would increase to P150,384.00 However, his net take
home pay would be drastically reduced to P125,288.00 (P150,384.00 P22,500.00 + 25%
of P10,384).
By earning an additional P312 per year, his net income or take home pay was
reduced by P25,096.00. This absurdity negates any increase that would be granted to an
employee. It effectively discourages an employee to ask for a salary that is only a little
higher than the minimum, said Yap.
Under the bill, the income tax rate of minimum wage plus P1 but not more than
P100,000 is two percent, the minimum wage plus P100 but not over P300,000 is P100
plus 5 percent of the excess over minimum wage plus P100,000, the minimum wage plus
P300,000 but not over P500,00 is P500 plus 10 percent of the excess minimum wage plus
P300,000.
Likewise, the income tax rates of minimum wage plus P500,000 but not over
P1million is P2,500 plus 15 percent of the excess over minimum wage plus P500,000, the
minimum wage plus P1 million but not over P5 million is P8,500 plus 20 percent of the
excess over minimum wage plus P1 million and the minimum wage plus P5 million but
not over P10 million is P22,500 plus 25 percent of the excess over minimum wage plus P5
million.
Lastly, the income tax rates of minimum wage plus P10 million but not over P10
million is P50,000 plus 30 percent of the excess over minimum wage plus P10 million and
minimum wage plus over P50 million is P125,000 plus 32 percent of the excess over
minimum wage plus P50 million.
The bill exempts minimum wage earners from payment of income tax on their
taxable income. Their 13th month pay, earned sick, vacation and other leave credits
convertible to cash, holiday pay, overtime pay, night shift differential pay, separation pay,
retirement pay and hazard pay received by such minimum wage earners shall likewise be
exempt from income tax.
Not later than five years after the effectivity of the Act and every five years
thereafter, the net taxable income levels and nominal tax rates shall be adjusted to their
present value using the Consumer Price Index (CPI) as published by the National
Statistics Office (NSO). (30) rbb