REVISED TAX REFORM BILL: THE STORY SO FAR

ON January 17, 2017, House Bill (HB) No. 4774, or the proposed Tax Reform for Acceleration and Inclusion (TRAIN) bill, - tatives, moving President Rodrigo Duterte’s tax reform program forward. It will be recalled that tax reform package was submitted back in September 2016.

of this long-awaited tax reform package is the restructuring of the existing individual income tax rates. Below is a table of the proposed individual income tax rates beginning July 1, 2017. The proposed individual income tax schedule for the second phase of the implementation will start in 2020.

Under the proposed tax reform bill, the current exemption of minimum wage earners (MWEs) will be incorporated into the revised tax brackets by exempting individuals whose taxable income do not exceed P250,000. Thus, there is a proposal to eliminate the Tax Code provision exempting MWEs.

This proposed graduated tax rates address the long-felt need to adjust - tion to avoid bracket creep. Bracket creep occurs when taxpayers are pushed to higher income tax brackets because of wage increases over time.

To ensure that the proposed graduated individual income tax schedules will not result in further bracket creep, an added feature of HB No. 4774 is the indexation scheme for individual income tax rates, which stipulates that after 2020, the secretary of Finance will adjust income levels once every five year for inflation. On the other hand, the imposition of an increased income tax rate of

35 percent from the existing 32 percent on the income of employees earning P5 million or more may be counterproductive to the objective of making our tax rates at par with other Asean countries. This may, instead, impair the Philippines’ competitiveness in view of the Asean economic integration. The imposition of a higher tax rate could act as a deterrent for workers belonging to the P5 million and above bracket to work in the Philippines and may prompt them to take of equity in taxation.

For a family of six where there are four dependents, this would mean a total of P150,000 of foregone exemptions. As illustrated in the table below, it is clear that the proposed individual income tax rates and the elimination of the personal exemptions would be - vidual earning P1 million, compared with a married individual receiving the same income.