Tax exemption for minimum-wage earners not retroactive
Manila Times
The income-tax exemption for minimum-wage earners is not retroactive to the beginning of 2008, as the law will only take effect on Sunday, the Bureau of Internal Revenue (BIR) said.
In a public hearing Tuesday, Nelson Aspe, deputy commissioner, said the bureau cannot refund the income taxes from January to June this year. He added that this issue has been resolved with the lawmakers before President Gloria Arroyo signed the exemption bill into law.
“Tax exemptions under the new law will result in additional take-home pay of P34 a day or P750 a month for minimum-wage earners and also increase personal exemptions for salaried workers,” Aspe explained.
Under the law, the implementation of Republic Act 9504 providing for the increase in personal and additional exemptions of individual taxpayers and absolute exemption of minimum-wage earners from income tax becomes effective on July 6.
Aspe said the agency is still drawing up revenue guidelines, and that the bureau is concerned about clarifying all the issues about the new law to the public.
He explained that only one-half of the total amount of the personal and additional deductions can be deducted from the income tax to be paid for this year. “[But] starting January 2009, individual taxpayers can avail of the full personal exemption benefits and additional deductions under the new law.”
More than half a million minimum-wage earners will benefit from the new law, as the level of personal exemption and deductions of individual taxpayers has been increased.
The new law also exempts holiday pay, overtime pay, night-shift differential and hazard pay from income tax of minimum-wage workers. But if the individual worker earns income other than his compensation income, then his income would be subject to tax.
The new law, which increases the personal exemption of single taxpayers from P20,000 to P50,000; head of family, P25,000 to P50,000; and married, P32,000 to P50,000 with the deduction of each qualified dependent, not exceeding four, is increased from P8,000 to P25,000.
The Department of Finance had said the measure would cost the government around P14.25 billion in foregone revenues, but the law imposes “optional standard deductions “ or OSD, estimated to generate P15.03 billion, to make up the difference.
The law allows certain optional standard deductions in filing business income tax returns, which is a 40-percent deduction based on gross sales or receipts in the case of those self-employed and professionals; for corporations, also 40 percent.
The optional standard deduction is expected to encourage businesses in the underground economy to pay taxes, according to the bureau.
“[The] key challenge for the BIR and the government is to keep the measure revenue-neutral, considering current pressures brought about by the global economic slowdown and high oil and food prices,” Aspe said.
– Chino S. Leyco
