Tax-free overtime, night shift pay
House minority members are pushing for the inclusion of tax-free overtime and night shift differential pay in President Rodrigo Duterte’s proposed comprehensive tax reform package.
“We are convinced that freeing from income taxes all the overtime and graveyard shift wages received by salaried employees would give even more meaning to the President’s strategy to adopt a fairer tax system,” House deputy minority leader and Makati City Rep. Luis Campos Jr. said in a letter to Quirino Rep. Dakila Carlo Cua, chairman of the House ways and means committee.
Cua’s panel is now conducting public hearings on House Bill (HB) 4774, the President’s proposed Tax Reform for Acceleration and Inclusion, which seeks to slash personal income taxes, while raising new revenues to help fund the administration’s 10-point socioeconomic plan for all-encompassing growth.
In his letter to Cua, Campos sought the incorporation in HB 4774 of HB 1000, which exempts from income tax the overtime pay earned by a taxpayer, and HB 1002, which also excludes from taxable income the night shift differential pay received by a taxpayer.
Overtime pay refers to the additional 25 to 30 percent compensation received by an employee for labor rendered in excess of the required maximum eight hours a day.
The night shift premium is the additional 10 percent remuneration for work performed between 10 p.m. and 6 a.m.
Under the Labor Code, if the overtime work falls inside the graveyard shift, the extra compensation for overtime labor is first added to the employee’s regular hourly rate before computing the night differential pay.
“Our sense is, whatever revenue is waived on account of the additional exemptions would be recaptured by government anyway, since salaried employees would simply spend the extra take home pay on personal or household consumption that is subject to the 12 percent value-added tax,” Campos said.
In pushing for tax-exempt overtime and nightshift wages, Campos invoked Section 28, Article 6 of the 1987 Constitution, which mandates Congress “to evolve a progressive system of taxation.”
He also cited the dictates of the Constitution for the State “to promote a living wage, a rising standard of living, and improved quality of life for all.”
At present, the overtime and third shift premiums of workers receiving more than the statutory minimum wage are slapped up to 32 percent in withholding taxes, depending on the employee’s tax bracket, although this maximum rate would be cut to 25 percent under HB 4774.
HB 4774 proposes to establish a new tax system that is simpler, fairer, and more efficient, characterized by low rates and a broad base that promotes investment, job creation and poverty alleviation.
The bill seeks to lower individual income taxes, expand the value-added tax (VAT) base, adjust the excise taxes on petroleum and automobiles, and reduce the rates of estate and donor’s tax.--