Although many believe that measures to bring down the tax rate or amend tax brackets are long overdue, is the last year of the presidential term the right time to tackle the issue?
In the last two years, there were three Senate bills filed seeking to amend Section 24 of the National Internal Revenue Code adjusting the individual income tax brackets and reducing income tax rates. Even the House of Representatives has its own version proposing for measures reducing income tax rates.
Among the proposed bills, Senate Bill No. 2149 authored by Senator Juan Edgardo M. Angara might get the biggest shot after the debates have begun. The said bill provides for an improved and feasible graduated scale for individual tax rates. The proposed brackets for taxable income have been expanded while lower tax rates range from 10% to 25%. At present, the highest individual income tax rate is 32%.
While the proposed bills received majority support from both Houses of Congress, there have been no substantial developments since the bills were filed.
Taxpayers have high hopes that our lawmakers and the President will address the issue of individual income tax rates before the end of the 16th Congress and the start of the campaign season for the 2016 national elections. Otherwise, this issue will once again be put on the back burner, or worse, start from scratch.
Many are optimistic that the president will bring up this issue in his SONA. Doing so may help expedite the discussion in Congress to adjust the brackets and the tax rates of the individual income earners. The passage of Republic Act No. (RA) 10653 in February of this year marked the start of reform in Philippine income taxes for the benefit of employees. RA 10653 increased the threshold of income tax exemption on the 13th month pay and other bonuses of employees.
Almost two decades have passed since the 1997 Tax Code, and many believe that it is high time for obsolete provisions to be addressed, particularly on the income tax rates of individuals.
Delays in addressing the Code’s shortcomings are believed to have created imbalances in our society. At present, those earning more than P500,000 per year (or around P41,000 per month) are generally being taxed in the same bracket as those earning millions and hundreds of millions per year. Add to this the impact of the rising cost of living in the country, and the disparity is even more noticeable.
With the possible reduction of income tax rates, the Bureau of Internal Revenue’s (BIR) tax collections will be directly hit. However, since the only concern of the BIR is the amount that it will lose upon the enactment of the proposed tax rate reduction, the agency may have a flawed appreciation of the big picture.
Allowing individual taxpayers to keep more of their income to spend has the effect of stabilizing the purchasing power of taxpayers in our economy. That purchasing power will result in transactions that will boost the value-added tax, capital gains tax, and documentary stamp tax, among others, ultimately redounding to the benefit of the government.
Further, increased purchasing power could contribute to the stimulation of the Philippine economy which could, in turn, attract more foreign investment, providing more tax revenue to the government.
Based on past trends, the last remaining year of a presidency is devoted to ensuring that pro-people bills become law. Taxpayers are still hoping that the president will highlight this long-awaited reform in individual income tax rates in his upcoming SONA. If such a law is passed, Mr. Aquino may end his term with a blast, leaving a tax legacy that Filipinos will cherish.
Mark Arthur M. Catabona is an associate with the Tax Advisory and Compliance division of Punongbayan & Araullo.
source: Businessworld
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