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Saturday, February 04, 2006 Tax-exemption bill to erode revenues By Dennis C. Serfino, Reporter A NEW income-tax exemption scheme approved early this week by the House ways and means committee is expected to cost the Philippine government billions of pesos in revenues if the legislature fails to pass a separate measure that would boost tax collections from self-employed individuals. The Department of Finance estimates the new scheme relieving minimum-wage earners from the burden of paying income tax would cost some P11.06 billion in forgone revenues. Besides minimum-wage earners, the proposed measure would also provide tax relief to low-income government employees such as drivers, messengers, clerks and utility workers. It also increases exemptions to ease the tax burden on low- and middle-income earners. In exchange, however, higher earning individuals will be made to pay more tax. The offsetting measure is called the Simplified Net Income Taxation Scheme (SNITS). DOF estimates showed that the government stands to lose P8.64 billion from the income-tax exemption scheme. Without SNITS, the governments losses would rise by another P2.42 billion.
However, if legislation supporting SNITS is passed, the government projects to raise incremental revenues of P6.84 billion, which will reduce the amount of forgone revenues to only P1.8 billion. The DoF is supporting congressional initiative to restructure the income taxation of self-employed individuals and professionals, specifically the adoption of SNITS, under which only direct costs that are easily verifiable are allowed as deductions. We regard the SNITS as a tax-efficiency measure as it gives government the tool to address tax avoidance practices through overdeduction of business expenses. We are hopeful that, as a consequence, the income tax base will be broadened and tax collections from the self-employed will improve, a draft DoF memorandum said. The finance department earlier lawmakers asked to permanently exempt minimum-wage earners in the private sector and in the government from paying the income tax. Minimum-wage earners as well as low-income government employees such as drivers, messengers, clerks and utility workers have been exempted from the withholding tax since January 1, 2006, on the basis of a new revenue regulation. But while withholding tax will no longer be deducted from their salaries, minimum-wage earners and their government counterparts belonging to salary grades 1 to 3 are still required to cough up their entire income tax every April 15. Exempting these workers from paying the income tax will require an amendment to the National Internal Revenue Code of 1997. Under the new tax scheme approved by the House ways and means committee, minimum-wage earners are permanently exempted from paying the income tax. The new system has six brackets. Income tax exemptions are given to those earning P55,000 and below a year. Those earning P55,000 to P100,000 a year will pay 26 percent of the amount in excess of P55,000. Those earning P100,000 to P250,000 will pay 11,700 plus 29 percent of the amount over P100,000. Those earning P250,000 to P400,000 will pay 55,200 plus 31 percent of the amount in excess of P250,000. Those earning P400,000 to P500,000 will pay ...