BusinessWorld: DoF backs tax breaks for minimum wage earners

The Finance Department is proposing amendments to the Tax Code in support of legislative measures seeking to exempt minimum wage earners from income taxes. "The proposal would legitimize and make fully effective the exemption of minimum wage earners and their counterparts in government from the payment of income tax," it said in a February 22 position paper. Finance Undersecretary Gil S. Beltran said the National Internal Revenue Code, among others, should include a legal definition of the term "minimum wage earner". A new sub-section under Section 22 of the Tax Code, the position paper states, should read "The term ’minimum wage earner’ shall refer to a worker paid at the statutory minimum wage rate fixed by the Regional Tripartite Wage and Productivity Board, as defined by the Bureau of Labor and Employment Statistics of the Department of Labor and Employment." The law should also clearly state that the exemption applies to private and public sector workers earning below P5,000 per month, effective 2006. This is to be accomplished via a new paragraph in Section 24 (c) stating "Provided, that compensation income earners in the private sector who are receiving the statutory minimum wage rate and those in the public sector who are occupying positions with equivalent salary level shall be exempt from the payment of income tax on their taxable income effective taxable year 2006." Other changes pushed are a proviso in Section 51 (2) (b) stating that "... an individual whose pure compensation income derived from sources within the Philippines exceeds the statutory minimum wage rate, in the case of employment in the private sector, or if in the public sector, the equivalent salary, or P60,000 pesos per annum, shall also file an income tax return." On the withholding tax requirement, it said Section 79 (A) should read "... no withholding tax shall be required where the total compensation income of an individual employed in the private sector does not exceed the statutory minimum wage, or P5,000 pesos per month, whichever is higher, and those employed in the public sector who are occupying positions with equivalent salary level." The changes are meant to support current initiatives exempting minimum wage earners from withholding tax under Revenue Regulations 1-2006. But the rules — implemented in 2006 to address concerns over the impact of a higher 12% value-added tax — do not provide for exemptions from the filing of income tax returns, and the payment of liabilities, every March 15 (for state workers) and April 15 (for private sector workers). An enabling law formalizing the income tax exemption is needed, the Finance department said. It should amend pertinent provisions of the Tax Code and be retroactive to taxable year 2006 to extinguish any liabilities incurred by minimum wage earners. Three bills are currently pending at the House of Representatives: House Bill (HB) 1140 which sets a January 2007 exemption date, HB 1198 which proposes exemptions for minimum wage earners in the private sector and state workers belonging to salary grades 1 to 3, and HB 1248 which calls for a personal exemption allowance. Initial estimates show that the government stands to lose some P951 million from over 365,000 minimum wage earners. - BusinessWorld