Senate bill on updated income tax brackets filed

Senator Juan Edgardo Angara has filed the Senate version of the bill seeking to  adjust the levels of taxable income to inflation, a measure that is expected to reduce tax rates on the lower income brackets.

Angara filed Senate Bill No. 3003 after Speaker Feliciano Belmonte announced on Thursday that he and Senate President Franklin would meet President Benigno Aquino III on Monday to discuss the measure, a version of which has already been filed in the House of Representatives.

The congressional leaders will discuss the measure with Aquino, who has repeatedly made known his opposition to lowering income tax rates  particularly when an increase in the value added tax was proposed to augment the expected revenue losses.

“This (new proposal) is the minimum position our government can take in reforming our outdated and unjust tax system,” Angara, chairman of the ways and means committee, said in a press statement Friday.

He said while the 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 the new proposal will ease taxpayers’ burden and make the tax system more equitable and progressive.

He said under the National Internal Revenue Code of 1997, individuals with taxable income of over P500,000 are taxed with a fixed amount of P125,000 plus the 32 percent of the excess over P500,000.

Taxable income refers to an individual’s gross income less the deductions and/or personal and additional exemptions.

Angara said at present, the Philippines has the second highest individual income tax rate at 32 percent in the ASEAN region, next only to Thailand and Vietnam’s 35 percent.

In his explanatory note, Angara emphasized that the Constitution mandates that the “rule of taxation shall be uniform and equitable,” and that the “Congress shall evolve a progressive system of taxation” wherein the tax rates imposed must be based on the person’s ability to pay.

“P500,000 in 1997 does not have the same value today due to inflation. P1 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are now pushed into the top tax bracket at 32 percent together with the billionaires of our country because of our outdated tax system.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,” he said.

Under the bill, the seven tax brackets will be retained but with the following adjustments:

Bracket 1: Those earning not over P23,000 would pay a fixed tax rate of 5 percent

Bracket 2: Those earning over P23,000 but not over P68,000 would pay a fixed tax of P1,100 plus 10 percent of the excess over P23,000

Bracket 3: Those earning over P68,000 but not over P160,000 would pay a fixed tax of P5,600 plus 15 percent of the excess over P68,000

Bracket 4: Those earning over P160,000 but not over P320,000 would pay an excess tax of P19,400 plus 20 percent of the excess over P160,000

Bracket 5: Those earning over P320,000 but not over P570,000 would pay a fixed tax of P51,400 plus 25 percent of the excess over P320,000

Bracket 6: Those earning over P570,000 but not over P1.2 million would pay a fixed tax of P114,000 plus 30 percent of the excess over P570,000

Bracket 7: Those earning over P1.2 million would pay a fixed tax of P300,000 plus 32 percent of the excess over P1.2 million

“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,” Angara said.

He said the proposed measure also provides for an automatic adjustment in the tax schedule every three years using the consumer price index “so that inflation will not result in tax increases.”

Aquino and his economic managers have rejected proposals to lower income tax rates given the possible revenue loss of up to P30 billion, and 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 P50 billion.

“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,” Angara said.

He added the present administration, due to underspending, has more than enough fiscal space to implement both the SSL IV and the income tax reform.

He said any revenue loss could be recovered, particularly through the VAT on goods because of the additional spending of the people brought by higher take-home pay.

“I am still pushing for tax reform despite the clock ticking and election season fast approaching. This is not merely an economic issue or a political move. Income tax reform is an issue of social justice, fairness and equity,” Angara said.

He, however, said the Senate alone cannot pass this bill because of the Constitution's origination clause which provides that all revenue measures must originate from the House of Representatives.

“We must aim for a society where the hardworking are rewarded and given a chance to move up. We must enable our workers to comfortably provide for their families and their future,” Angara said. -NB, GMA News