Lawmaker files more viable tax reform measure

The Senate committee on ways and means has filed a new income tax reform measure that seeks to adjust the levels of taxable income to inflation.

Senator Juan Edgardo Angara said the new tax reform measure is a more viable proposal for the remaining time of the Aquino administration than the initial measure they earlier presented but was thumbed down by Malacañang.

The new bill, Senate Bill No. 3003, Angara said, seeks to make the tax system more equitable and progressive, retaining the seven tax brackets but with some notable adjustments.

“While our initial proposal was to lower the tax rates across-the-board and compress the tax brackets from seven to five, adjusting income taxes to take into account inflation is a more viable proposal for the remaining time of the present administration,” Angara said.

“This is the minimum position our government can take in reforming our outdated and unjust tax system,” he said.

Uniform and equitable taxation

In the explanatory note of Angara’s new income tax reform bill, he emphasized that the Constitution mandates that the “rule of taxation shall be uniform and equitable,” and that “Congress shall evolve a progressive system of taxation” wherein the tax rates imposed must be based on the individual’s capacity to pay.

Angara pointed out that 500,000 in 1997 does not have the same value today due to inflation.

Under the National Internal Revenue Code of 1997, individuals with taxable income of over 500,000 are taxed with a fixed amount of 125,000 plus the 32 percent of the excess over 500,000.

Taxable income refers to an individual’s gross income less the deductions and/or personal and additional exemptions. Presently, the Philippines has the second highest individual income tax rate in the ASEAN region, next to Thailand and Vietnam’s 35 percent.

“ 1 in 1997 when adjusted for inflation is now worth only 44 centavos. Middle-income earners, who were mostly taxed at 25 percent in 1997, are now pushed into the top tax bracket at 32 percent together with the billionaires of our country because of our outdated tax system. Is this equitable and progressive? Clearly, it is not,” the senator explained.

Tax bracket adjustments

So under the new bill, the seven tax brackets will be retained but with the following proposed adjustments:

Bracket 1: Those earning not over 23,000 would pay a fixed tax rate of five (5) percent;

Bracket 2: Those earning over 23,000 but not over 68,000 would pay a fixed tax of 1,100 plus 10 percent of the excess over 23,000;

Bracket 3: Those earning over 68,000 but not over 160,000 would pay a fixed tax of 5,600 plus 15 percent of the excess over 68,000;

Bracket 4: Those earning over 160,000 but not over 320,000 would pay an excess tax of 19,400 plus 20 percent of the excess over 160,000;

Bracket 5: Those earning over 320,000 but not over 570,000 would pay a fixed tax of 51,400 plus 25 percent of the excess over 320,000;

Bracket 6: Those earning over 570,000 but not over 1.2 million would pay a fixed tax of 114,000 plus 30 percent of the excess over 570,000;

Bracket 7: Those earning over 1.2 million would pay a fixed tax of 300,000 plus 32 percent of the excess over 1.2 million.

Correct system

“In effect, we are reducing the tax burden of our workers as most of them will be pulled back to their original tax brackets in 1997. Tinatama lang po natin ang sistema (We are just correcting the system),” Angara stressed.

Because “if we leave our brackets without provisions for indexation or automatic adjustment, our workers, despite an increase in their salaries, will make less money in real terms than in 1997 because of inflation and as a result of being in a higher tax bracket,” the senator added.

President Aquino and his fiscal managers have rejected proposals to lower income tax rates fearing a possible reduction in the country’s revenue of up to 30 billion, which may in turn result to having a negative factor in the event credit rating agencies start evaluating the country’s economic performance.

Palace officials are instead pushing for the passage of the Salary Standardization Law (SSL) IV that would increase the salaries of 1.3 million government employees but would cost the government more than 50 billion.

Angara had said he hopes the President would approve the bill before the year ends as most lawmakers would be busy preparing for the May, 2016 national and local elections. He said he would discuss the new proposed income tax reform measure with Rep. Miro Quimbo, his counterpart in the Lower House.