PROPOSED TAX REFORM: ‘Minimum wage earners exempted from paying tax’

By Juan Escandor Jr. NAGA CITY---Minimum wage earners and those earning P250,000 a year and below are exempted to pay income tax under the proposed tax reform of the Duterte administration, according to an official of the Department of Finance. Assistant Secretary Maria Teresa Habitan, who came to Naga City recently, told the Bicol Mail that the Duterte administration wants a simple, fair and efficient tax scheme to bridge the gap between the rich and the poor in the Philippines. “Those who are rich and have more will pay more and the poor will benefit so that we can erase the poverty gap that has been happening for several decades now,” Habitan said. She said the government hopes to lessen the overall tax burden on the poor and the middle-class. Habitan said as part of the tax reform program of the present administration is to exempt taxes on bonuses up to P82,000 of the bonuses. She said the rest of the tax payers, those earning more than P250,000, will be paying lower tax income rates. “Currently, a person who has a taxable income of P500,000 will pay a lower rate of 32 percent at the margin. Our proposal will bring this down to 25 percent, and after five years this will be brought down to 20 percent,” Habitan said. She said from 32 percent, anybody who earns P500,000 annually will only pay 20 percent in three years which said “a good deal for everyone.” Habitan said the minimum wage earners which equivalent to salary grade 5 in the government will not be affected by the tax reform because currently their incomes are already exempted. She said the proposed tax reform package also restructures the taxation of micro-businesses to a flat rate of 8 percent and will not be burdened by too much documentary requirements. “Part of the package is also the reduction in the donor’s tax for a single tax rate of 6 percent, regardless of relationship between the donor and donee,” Habitan said. The estate tax will also be restructured to the same single rate of 6 percent based on the net value of the estate,” she added. But Habitan said the reduction in the tax package must be offset by “improving the VAT (Value Added Tax) system” by limiting the exemption, staggered increase in the excise tax of petroleum products and updating excise tax on alcohol bills. “In short, our tax reform package while offering to give more money back into the pocket of the people will have to be offset by positive increases of taxes elsewhere so that we can afford to finance the infrastructure, the education and the health objectives of this administration,” she said. On VAT rate Habitan said that in the Philippines the VAT rate is 12 percent compared to Southeast Asian neighbors which are 10 percent for Indonesia, 7 percent for Thailand, 10 percent for Vietnam and 6 percent for Malaysia. “Even with the higher VAT rate of 12 percent in the Philippines, our VAT system actually contains many lines of exemptions. And these exemptions are not only in the Internal Revenue Code where 59 lines of exemption appear but other laws, 84 additional exemptions are provided in special laws,” she said. Habitan argued that the VAT system in the Philippines covers less compared to other Asean countries. She said in Indonesia there are only 37 lines of exemptions; Thailand has 35 lines of exemptions; Vietnam, 25 lines of exemptions; Indonesia, 14 lines of exemptions; and 14 lines of exemptions in Malaysia in the VAT system. “It is important to expand the VAT base by limiting its exemptions,” Habitan said. She said the proposed VAT exemptions include cooperatives except those producing raw agricultural products, power transmissions, domestic shipping importation, low-cost and socialized housing, lease of residential units and the associations of boy scouts and girl scouts. “The (VAT) exemptions of senior citizens and persons with disability will not be removed in the tax reform proposal,” Habitan emphasized. She said the proposed tax reform limits the VAT zero rating to those who actually export goods out of the country. “Right now, we also provide VAT zero rating to supplier to direct exporters. So, we want to limit the VAT zero rating to the direct exporters only.” Habitan said the removal of VAT zero rating to indirect exporters and agents and move the renewable energy from VAT zero rating to an exempt status. She said it is also proposed that the VAT threshold be raised to P3M from P1.9M for low-income and vulnerable households. Excise tax rate “Some of the controversies and protests and criticisms of the tax reform package come from our proposal to increase value added taxes (on petroleum products),” Habitan said. She said the increase will be staggered. “Right now, for example diesel and other essentials are zero tax and they don’t pay anything in diesel products---the importation of these products and the production of diesel have zero excise tax,” Habitan said. Gasoline, she said, is charged with excise tax of P4.35. Habitan said the proposed tax reform package wants to increase the excise tax to P3 to diesel in the second half of 2017; P5 in 2018; and P6 in 2019; and by 2020 it will be indexed at 4 percent. “Every year there will be an increase in excise taxes,” she said. However, Habitan said, the excise tax will not increase when the barrel of Dubai crude oil reaches $100/barrel. “So, we will freeze the indexation.” She said the contribution of excise taxes to the national revenue has fallen over time. Habitan said the consumption of diesel has been mainly attributed to the top 10 percent of Filipino households who earn P113,000 and above per month. “Those who have higher income consumes more than the low-income households,” she said. She said the top one percent of the Filipino households or 180,000 households, who earn at least P288,000 and above per month, consume 13 percent of the total fuel demand.