Filipino ADB employees tax-exempt, CA affirms

Filipino personnel of the Asian Development Bank (ADB) scored another victory against the taxman, as the Court of Appeals (CA) last week denied the move of the Bureau of Internal Revenue (BIR) to have the Manila-based employees taxed.

BIR Commissioner Kim S. Jacinto-Henares told the Inquirer on Wednesday that the country’s biggest tax-collection agency will appeal the latest CA ruling before the Supreme Court.

For former internal revenue chief Liwayway Vinzons-Chato, who now serves as legal counsel for the ADB employees, the high court will also likely dismiss BIR’s appeal. “We are praying it will be dismissed [by the Supreme Court] outright if the procedure is to be followed,” Vinzons-Chato said in a telephone interview.

In a resolution dated January 4, 2016, the CA’s former second division denied the BIR’s appeal, noting there was “no review of evidence required in resolving this issue.”

“There is nothing here for the courts to do but to interpret the provision of [Revenue Memorandum Circular] 20-86 and the Administrative Code in order to determine the validity of RMC 31-2013,” the decision penned by Associate Justice Agnes Reyes-Carpio read.

The case stemmed from a petition filed by two ADB employees before a Mandaluyong court after being slapped with tax evasion cases. They questioned Section 2(d)(1) of BIR’s RMC 31-2013 that said “only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax.”

The Mandaluyong court later ruled that the BIR ruling was “void in absence of legislation and/or regulation to the contrary.”

The BIR raised the issue before the appellate court, but subsequently received an unfavorable ruling in July last year.

The CA had said the BIR had “improperly elevated” the case before it by ordinary appeal when it should have been raised by petition for review on certiorari before the Supreme Court under Rule 45 of the Rules of Civil Procedure. Reyes-Carpio had explained the case filed by the BIR did not call for a review of the evidence, but involved a question of law.

Questions of law are usually raised before the SC.

“The main question now lies in the interpretation of the exemption provided by the ADB charter and its applicability to petitioners-appellees. Thus, there is no review of evidence required. Consequently, the issue of the instant case is one which is a question of law,” read Reyes-Carpio’s previous ruling, to which Associate Justices Remedios Salazar-Fernando and Romeo F. Barza concurred.

source:  Inquirer

BIR: Taxes on benefits of gov't workers specified in Internal Revenue Code

Bureau of Internal Revenue chief Kim Henares denies accusations she usurped Congress' power to legislate when she issued Revenue Memorandum Order 23-2014.

Henares explains the order, which taxes thirteenth month pay and other benefits of state employees, merely clarifies provisions that are already in the Internal Revenue Code passed in 1997.

Henares also rejects speculation the controversial order targeted the judiciary's employees in retaliation for the Supreme Court's ruling on the Disbursement Acceleration Program (DAP).

"Kapag binasa niyo 'yung RMO ko, wala naman ako...kinover ko lahat eh: constitutional bodies, legislative, judiciary. Wala naman akong sinabing Supreme Court lang. At saka in-issue 'yang RMO na yan, kailan ho? 'Yung ruling ng Supreme Court na DAP, kailan ho lumabas? Secondly, ano naman pakialam ko sa kanila?" Henares says.

Gov't workers protest taxes on allowances, benefits

On Wednesday, government workers called on the Supreme Court to intervene to stop the BIR order on their taxes. Wearing red and black ribbons, employees of the Supreme Court and the lower courts staged a rally at the high court grounds.

The group laments how government is after ordinary employees like them who are living on meager pay.

They said that instead of increasing taxes, the government should raise the wages of all state workers.

But Henares says she is just implementing the Internal Revenue Code. She also clarified that below-minimum wage earners are expempted from certain taxes.

"My mandate is to implement this law. I'm deaf, mute, blind to all the noise around me. There are exemptions, of course. If you're a minimum wage earner, you're exempted from tax," Henares says.(For more information on how to compute, play this video of the Henares guesting at the 9:37 mark)

Henares warns against raising ceiling of taxable pay

Meanwhile, Henares warns against some law makers' moves to raise the ceiling of taxable income from the current P30,000 to P75,000.

She says doing so would reduce government revenues and its capability to deliver services to the people.

"This is the only position I have. When you try to pass a law, the Bureau of Internal Revenue will only come out and say 'Okay, if you pass this law, this means we will not be able to collect this much. If we will not be able to collect this much, you lower our goal by this much.' Because where will we get it? It's now an impossible goal. Before, it was difficult. It's now impossible. If you lower our goal, that means your expenditure for government will be lower. Then when you lower your expenditure, you have to choose which programs you will not fund. You have to decide who will make the sacrifice. Now, if everyone is clear and all these things are acceptable to everyone, then there's no quarrel," Henares says.

source:  Yahoo!

A tax break for impoverished millionaires

I DON’T know Senator Sonny Angara; I never voted for him. Neither am I from Aurora. But I had met him, professionally, a couple of years back when he was still a congressman. It was a quick meeting; not the type that anybody will remember. Back then, and even after he got elected to the Senate, he never struck me as someone worth watching. Not until last week, that is.

Now I deem him somewhat deserving of our “middle class” vote, in what my friend and fellow columnist JB Baylon refers to as a doughnut society (where there is no middle). Rarely do Filipino politicians -- and Sonny Angara is a politician above all else -- court the middle class. After all, there are just too few of us; or not enough of us to actually matter in an election.

The middle class, in my opinion, has been diminishing over time, although statistics may indicate otherwise. Its ranks are being raided by the lower class, as rising prices and living costs -- along with stagnant if not declining income -- adversely affect their worth. Very few, usually entrepreneurs, survive these “raids” and successfully go up to the next rung.

And thus some kudos to Sonny Angara, for pointing out that the country’s present tax system is already outdated. He also describes it as inequitable, for making middle-income earners pay the same tax rate as billionaires.

Finally, a Filipino politician -- a wealthy and privileged man -- who seems to understand how it feels to be middle class.

“Updating our tax system is an issue of equity. It’s not an issue anymore of macroeconomics. That’s all meaningless if the average person has nothing left for his family,” Mr. Angara, who chairs the Senate ways and means committee, was quoted as saying during a Senate hearing on bills to slash individual income tax rates. “In a highly unequal system like ours, talagang kawawa yung nasa gitna (those in the middle are hit hardest).”

These comments make Mr. Angara a relatively brave soul; a politician who speaks the truth. From where I sit, I do not see a rich country pretending to be poor, like how some opt to describe us here in the Southeast. Instead, I see a poor country pretending to be rich to the outside world. I see a country of poor masses and impoverished millionaires; its people victimized by its own government through incompetence, indifference and corruption.

And the present tax system, as the government implements it, is among the culprits. It creates a situation of inequality that the government itself perpetrates. As an example, why is the system prejudiced against those who have more than four children or dependents? Why can’t taxpayers claim tax deductions beyond the fourth child? Why can’t people claim maternity benefits from the Social Security System beyond the fourth pregnancy?

For Mr. Angara, the issue is the tax rate, noting that the current top tax bracket of P500,000 and above annual income has remained unchanged since the Marcos years. “Tax brackets should be adjusted to make (these) more sensitive to current salaries of Filipinos. Because at present, a person who makes P50,000 a month -- who is considered middle class -- is already in the top tax bracket and is also paying the same tax rate as the billionaires in our country,” Mr. Angara was quoted as saying.

A person who makes P50,000 a month or P650,000 a year (including 13th month pay) currently pays an annual income tax of roughly P195,000 and nets an annual income of P455,000. And this results in a monthly household budget of about P38,000. For a family of six, that monthly budget is barely enough to keep them out of the slums.

It translates to a daily budget of about P1,200, or only P200 per day per head -- to cover house rent or amortization, utilities, food and clothing, transportation, education, health services, and, of course, mandatory deductions like social security and PhilHealth, plus other government fees and charges other than income tax.

On the other hand, a man who makes P1 million monthly or P12 million annually -- even with a 30-32% income tax rate -- still gets to take home about P700,000 a month to his family of six. There is major disparity in income and purchasing ability, yet they pay the same income tax rate?

And that is why Mr. Angara, through his Senate Bill 2149, proposes to peg at P1 million and above -- from the present P500,000 and above -- the country’s top income tax bracket, and to reduce the maximum tax rate from the current 32% to 25% by 2017.

I feel the top income tax bracket should be nearer the P3 million level (or P250,000 monthly), which is more in tune with what we can realistically define as being rich or wealthy or having more than enough. Taking the case of a family of six, an annual family income of P1 million minus P250,000 in tax (at 25%) results in a daily household budget of only P340 per head per day -- which is below the present minimum daily wage in Metro Manila.

Mr. Angara’s plan is already a major step in the right direction, particularly for middle income earners like me. But unless he raises the top income bracket to at least P3 million, cutting the tax rate to 25% appears to benefit the rich -- like himself and his family -- more rather than the middle- or low-income earners. Those who make millions and billions don’t really bother with tax brackets, as they will always be on top. But cutting their tax rate to 25% from 32% will surely save them a lot of money.

(Send comments to matort@yahoo.com.)

source:  Businessworld

It hurts when I pay my taxes

EVERY TIME I get my pay slip, I get depressed. I see the amount of what I was supposed to have earned and, right below it, the amount of tax deducted from my income that I would never see again. Of course, some would argue that I do see the tax I paid in terms of infrastructure and public services. But even if I try to console myself with such platitudes, I find myself feeling more depressed every time I ride the MRT and get squeezed by the hordes of people also trying to get in, or when I go to a government office just to be practically ignored or, on special days, even snarled at.

I am not complaining that I have to pay taxes. Paying taxes is every citizen’s responsibility. Public service will collapse without the taxes paid by the good citizenry. However, how much does the government really deserve to get from my hard earned salary? How much is fair to be considered my civic duty and how much is confiscatory on the part of the government?

I will not whine that our tax rates are higher than those of the rest of the world. There are actually countries that impose higher than 50% tax rates. Compared with such rate, our 32% may not really be something to complain about. However, in most of the countries where the taxes are high, the government provides generous benefits and adequate pension plan. Compared with those countries, our benefits and pension plan are almost non-existent.

When it comes to income taxes paid by individuals, the rates are not the critical measure. The more important consideration is the level of income subjected to a particular tax rate. Fairness dictates that after tax deduction, a person should be left with an amount still sufficient to care for his family’s needs.

Ours is supposed to be a progressive system of taxation where the poor are supposed to pay less and the rich are supposed to pay more. Based on our tax table, once an individual’s annual taxable income hits above P500,000, the highest tax rate of 32% is imposed. In fact, my niece who is a new graduate and receiving around P12,000 a month is already paying tax at the 20% level. With the prices of all commodities increasing almost every month, the 20% tax on such measly income is even more tear-jerking than the latest telenovela.

On top of the 32% income tax that gets automatically deducted from my salary, the remainder of my take home pay will still be subjected to the 12% value-added tax (VAT) for every trip I make to the grocery. No wonder I hardly see anything in my refrigerator after every payday, as almost 40% of my salary already goes directly to income tax and VAT.

Hence, when I read news reports last week that both the Senate and the Lower House are discussing reducing taxes, I could not help but smile. Truly, this was the only good news I had heard in the past week.

There are various bills seeking to reduce the tax rates that were set in 1997 and that remained unadjusted to this date. Most of the bills explained the need to adjust the tax rates considering that the Consumer Price Index from 1998 to May 2013 has almost doubled at 96%. This means that a basket of goods worth P100 in 1998 already costs P196 in 2013.

Senate Bill (SB) No. 716, filed by Senator Ralph G. Recto, proposes to double the threshold level per bracket. This means that the highest rate of 32% will only be imposed once an individual earns more than P1 million taxable income per year.

SB 1942, filed by Sen. Paolo Benigno A. Aquino IV, proposes to adjust the threshold levels and introduce additional brackets. Taxable income over P1 million will be taxed at 32%, and taxable income over P12 million, at 35%.

SB 2149, filed by Sen. Juan Edgardo M. Angara, seeks to reduce the tax rates in preparation for the Association of Southeast Asian Nations’ economic integration by 2015 and align our tax rates with those of our ASEAN neighbors. The reduction of tax rates would be implemented from 2015 to 2017. Under his proposal, the tax rate for the top level of more than P1 million shall be 32% in 2015, 28% in 2016 and 25% in 2017.

House Bill (HB) No. 4099, filed by Valenzuela Rep. Magtanggol T. Gunigundo (2nd district), proposes to lower corporate income tax to 15% and individual income tax to 30%. The bill also proposes to exempt from tax salaries of P180,000 a year.

HB 210, introduced by Cagayan Rep. Salvacion S. Ponce Enrile (1st district) proposes to reduce the tax rates by half. This means that taxable income above P500,000 will be subject to tax at 17.5%. Additional higher brackets are also introduced with the top rate of 32% imposed on taxable income above P12 Million.

Most of the proposals are not really lowering the tax rates but only adjusting the brackets to conform to the increase in consumer price index. Just the same, any reduction, no matter how small, is good news. Hopefully, the Congress will finally be able to pass a law decreasing the tax rates and adjusting the tax brackets. Perhaps, the next time I receive my salary, I can finally afford to buy that bag I have been eyeing for the last two years.

The author is a partner with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

source:  Businessworld

Income tax rate to be slashed by half?

A LOT has been said about tax burden, stifling tax rules, and tight Bureau of Internal Revenue (BIR) assessments.

Many taxpayers believe that there’s already too much to bear in terms of the impact of taxes in the Philippines. In particular, for salaried employees, this is very much felt every payday, when they account for their meager take-home money, after being ripped by huge income tax deductions. For the individual investors alike, the weight of tax is felt when they see their corporations subjected to vast corporate income tax, in addition to the dividends tax that they have to pay when they earn their investment yield. Tie these to some recent confusing tax rules and unpredictably bizarre tax assessments, and we can imagine how a taxpayer in the Philippines would take a selfie of his face reacting to such situations.

If we couple the above scenario with the current heat wave that we are currently experiencing, we don’t know whether a taxpayer will already tell himself that, indeed, the end of the world is very near! Exaggeration? Maybe.

But, if you are a common taxpayer who finds it hard to sustain your daily expenses and the needs of your family; if you are an employee who attends to numerous and unending requirements in a BIR assessment; or if you are a tax officer who is confused about properly applying the tax rules due to conflicting interpretations, you may realize that tax matters in the Philippines are undeniably too burdensome.

That is why, when the news broke out that there are legislators who are pushing for the reduction of income tax rates, somehow, taxpayers suddenly saw a sliver of hope. In certain legislative proposals, the recommendation is to cut the maximum income tax rate of individuals from 32% to 15%. For corporations, the reduction is proposed to be from 30% to 15%. This definitely sounds promising.

Let us try to compare the individual income tax rate in the Philippines with that of the neighboring countries. There were studies that the current maximum rate in Singapore, Myanmar, and Cambodia is 20%; Laos, 24%; Malaysia, 26%; and Indonesia, 30%. The maximum rate in the Philippines, however, is 32%, a relatively higher tax rate.

In addition, it is noticeable that the Philippines’ individual income tax brackets have remained unchanged since 1997, or for around 17 long years, even as the consumer price index has almost doubled already. Consequently, given the individual income tax rates ranging from 5-32%, a significant number of taxpayers falls under the category of the maximum rate of 32%.

On the other hand, for corporate income taxes, in our neighboring countries like Indonesia and Malaysia, the corporate income tax rate is at 25%, while in Singapore, the rate starts at 8.5% with a ceiling of 17%. In comparison, the Philippine corporate income tax rate is high at 30%, which could deter foreign investors.

Now, having mentioned the proposed reduction of income tax rates, opposition is not hard to find. There are some who may say that such proposal is a bit one-sided without looking at the consequential drop in the government’s revenue. They may raise a reminder that taxes are the lifeblood of the government, and that reaching the annual collection target of the BIR will be hampered.

However, supporters of the proposed reduction would explain that lowering the income tax rate would provide individual taxpayers with more take-home money to spend, which, in turn, would stimulate the economy. Also, the spending could be on goods or services subject to value-added tax, which would ultimately be remitted to the government anyway.

Moreover, the lowering of individual and corporate income tax rates would make the Philippines more competitive compared with our fellow members of the Association of Southeast Asian Nations, considering that the ASEAN integration is forthcoming. In the integration, remember that there will be free flow of goods, skilled labor, and investments, among other things, and the Philippines should definitely be not unmindful that tax consequences have an important role in these aspects.

Hence, the effect of the reduction of income tax rates should be looked at in a holistic perspective, as it has a cyclical outcome affecting the lives of the taxpayers, then the stimulation of the economy, and then the benefits of economic growth for the good of the country as a whole.

There are a lot more specifics as to the advantages of lowering the income tax rates in the Philippines if we will try to study the different versions of the proposed legislative bills, and the rationale behind them is not without sound reason.

We just hope that, amidst the tax crises and hardships that are currently bombarding the taxpayers, there will be favorable tax developments in the near future. Slashing the income tax rate by half would definitely help ease the taxpayer’s lives. If it happens now, well, taxpayers may be too ecstatic that we may even forget the discomfort caused by the extremely hot weather.

To slash the income tax rate by half? Perhaps, we have to seek divine intervention and just hope for the best.

The author is a director with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

source:  Businessworld

How to file income tax returns

AS the April 15 filing deadline of income tax returns (ITRs) for taxable year 2013 draws near, taxpayers are advised to prepare as early as now rather than suffer the inconveniences encountered when trying to beat the deadline.

The tax season is the busiest time of the year, not only for accountants who prepare the ITRs, but also for all taxpayers (individual and corporate) who are obliged to file with the Bureau of Internal Revenue (BIR) on or before April 15 every year for income earned during the calendar year ending Dec. 31.

This is also the best time for us taxpayers to do our share in paying the right taxes. The BIR’s 2014 tax campaign theme sums up the basic steps that a taxpayer needs to follow to be able to comply with his/her obligation of paying correct taxes for our nation: “I LOVE THE PHILIPPINES, I Pay My Taxes Right. It’s as Easy as RFP (Register, File and Pay).”

Filing ITRs need not be a daunting task as long as you have your records in order and you follow the filing guidelines below:

1. Use of the new ITR forms. For this filing season, taxpayers are required to use the June 2013 enhanced version of the ITR as prescribed by Revenue Regulations No. (RR) 2-2014.

Except for some enhancements, the ITR forms remain the same for individuals earning purely compensation income (BIR Form 1700) and for self-employed individuals, estates and trusts (BIR Form 1701).

For corporations, partnerships, and other non-individual taxpayers, the forms to be used shall be BIR Form 1702-RT if taxable income for the year is subject only to the regular income tax rate; BIR Form 1702-EX if taxpayer is exempt under the Tax Code and other special laws, with no other taxable income; or BIR Form 1702-MX for taxpayers with mixed income subject to multiple income tax rates or with income subject to special/preferential rate.

2. Modes of preparation and filing. The continuous enhancement and development of electronic services (e-Services) by the BIR has brought about the use of Electronic BIR Forms (eBIRForms) as an additional mode of filing for non-eFPS (non-Electronic Filing and Payment System) taxpayers pursuant to Revenue Memorandum Order No. (RMO) 24-2013 in relation to Revenue Memorandum Circular No. (RMC) 61-2012.

Non-eFPS taxpayers now have the option to either prepare the ITRs manually through pre-printed forms/printed downloadable PDF/Excel forms available at the BIR Web site, or electronically through the eBIRForms Offline Package v4.1 (with Annual ITRs v2013 ENCS).

The advantage of using the eBIRForms Offline Package is its capability to automatically compute the taxes due as well as validate the information provided by the taxpayers. Thus, ITR preparation becomes a breeze for those who opt to do it electronically. Upon downloading the eBIRForms package from the BIR Web site, taxpayers are guided through the process by the detailed instructions that come with it.

After filling up the electronic ITR form, the taxpayer can validate, edit, submit, save, print and produce a final copy of the form. Submission of these forms will only be allowed after the form has been completed and validated. Once validated, the taxpayer may now submit online either through the e-Submission or eFPS facility of the BIR.

However, for the time being, online submission is not yet available for ITRs generated from the eBIRForms offline package. Hence, non-eFPS taxpayers are required to submit manually to the BIR the printed copy of the computer-generated ITR with the following specifications: folio size bondpaper (8.5” x 13”), portrait orientation/layout with the following margins: left, 0.146 inches; right, 0.148 inches; top, 0.14 inches; and bottom, 0.14 inches. The printed ITR forms should be originally signed by the taxpayer or his/her authorized representative pursuant to Bank Bulletin No. (BB) 2014-08 in relation to RMC 61-2012.

3. Modes of payment. Payment of the income tax may either be manual or electronic for non-eFPS taxpayers. Manual payment will be made through any Authorized Agent Bank (AAB) within the jurisdiction of their registered Revenue District Office (RDO) or the Revenue Collection Officers (RCOs), as applicable. On the other hand, electronic payment can be made via mobile phone through G-Cash for tax returns not exceeding P10,000 as prescribed by RMO 20-2005.

Payments with the AABs will be accepted until 5:00 p.m., April 1-15, to better serve the needs of the taxpayers during this income tax filing season. Two or more checks and/or a combination of cash and checks in paying for a single tax liability will be allowed pursuant to RR 16-2002.

For ITRs without payment, it shall be filed at the respective RDO having jurisdiction over the taxpayer.

4. Receiving rules of the ITR. Only three copies of the returns are allowed to be stamped “received” with the official BIR seal by all AABs. However, for those filing with BIR Revenue Region No. 2 (Cordillera Administrative Region), Revenue Region No. 7 (Quezon City) and Revenue Region No. 9 (San Pablo City), only two copies of the ITRs shall be received.

In the case of corporations and other juridical persons who are required to file with the Securities and Exchange Commission (SEC), two extra copies of the audited financial statements for filing with the SEC shall be stamped “received”. The BIR seal shall only be stamped on the page of the Audit Certificate, Balance Sheet and the Income Statement. Other pages of the financial statement and its attachments shall not be stamped.

To fully appreciate the filing process, early preparation is an advantage. As Alexander Graham Bell once said: “Before anything else, preparation is the key to success.”

The author is a senior at the Cebu branch of Punongbayan & Araullo’s tax advisory and compliance division. P&A is a member firm within Grant Thornton International Ltd.

source:  Businessworld