Tax reform proposal for individuals

Every taxpayer desires for a decent disposable income to elevate his standard of living. With the tax reform package submitted by the Department of Finance ( DOF), it is quite remarkable how the DOF seeks to lower the personal tax rates. Indeed, the agency aims to bring comfort to Filipino lives especially the poor and middle-class individual income earners.

One of the major overhaul is the probable revision of personal income tax rates and bases. Under the proposed personal income tax schedules, the progressive tax rates will be at 20 to 35 percent for the tax year 2018; and 15 to 35 percent for tax year 2019. The first P250,000 of an individual taxpayer’s taxable income is exempt from income tax. Thereafter, the tax rates will be adjusted once every five years in consideration of the cumulative five-year inflation factor. It was in 1997 when the personal tax rates were adjusted. It is good to see the government is dynamically approaching the “income bracket creeping” with a more equitable and sustainable tax reform policy.

Amidst the adjustments in the tax brackets and rates, an individual taxpayer can still enjoy the maximum exclusion of 13th month pay and other benefits amounting to P82,000 (Section 32(B) of R.A. 8424, as amended by R.A. 10653) from the computation of their taxable income.

Below is an illustration of how the taxes are progressively applied to taxable income amounting to P5,000,000 using the current tax schedule and the proposed tax schedule for tax year 2018 and 2019. For further analysis, the taxes due under the current tax table dropped from P1,565,000 to P1,450,000 which is computed under the proposed tax table (that is seven percent decrement).

While many are happy, the elderly and persons with disabilities (PWDs) may be frustrated with the plan to repeal the Expanded Senior Citizens Act of 2010, pertaining to the value-added tax exemption (Section 4 of R.A. 9994) and the Magna Carta for Persons with Disability (Section 32(A) of R.A. 7277, as amended by R.A. 10754). We all know that both the Macapagal and Aquino III administration had passed the above-mentioned laws which provide tax incentives to our elderly and PWDs. It is surprising the current administration is proposing the removal of such benefit for the sake of compensating for lower personal tax rates.

Overall, with careful review and the proper implementation of proposed tax reform program, it will surely produce a constructive synergy to our economy. This includes the growth of consumption activity due to the increase in the purchasing power of workers and employees. Although the bill is still under review, the Filipino workforce continues to hope for a better and comfortable life with our government aiming for a real positive change. There may be detractors along the process and we can expect it will undergo critical scrutiny. It is important to bear in mind that tax is the lifeblood of the government and without it, they cannot finance their legitimate objectives to serve the people.

Mark Joseph Pe is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.