Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City

Dati

SEVENTEENTH CONGRESS
First Regular Session

57

HOUSE BILL No.

Introduced by ACT Teachers Party-List
Rep. ANTONIO L. TINIO and Rep. FRANCISCA L. CASTRO

AN ACT
RESTRUCTURING THE INCOME BRACKETS AND RATES OF TAX IMPOSED
ON TAXABLE INCOME OF INDIVIDUALS, AMENDING FOR THE PURPOSE
SECTIONS 24, 32, 33, 34 AND 35 OF THE 1997 NATIONAL INTERNAL
REVENUE CODE OF THE PHILIPPINES, AS AMENDED

EXPLANATORY NOTE

This bill embodies the long-running demand of the Filipino people for
lower income taxes unanswered by the past administrations.

The demand for lower income taxes is just and reasonable. For one,
the present ten income tax brackets and their corresponding rates were
first set way back in 1986. However, consumer prices have increased by
539.53% since then, according to the National Statistics Office.”
Consequently, the purchasing power of the relatively well-to-do Filipino
earning P10,000, for instance, in 1986 is now 539.53% smaller—he or she
is poorer more than five times over but is still taxed at the same rate.

* asof 2014

HOUSC OF REPRESENTATIVES
RECEIVED

e: 30 Jui 2016

tiwe:_] 2 ¢
BY:

REGISTRATION UNIT
BILLS AND INDEX SERVICE


To make matters worse, wages and salaries of income earners in
both public and private sectors have increased nominally numerous times
in the past three decades. To illustrate, the salary of an ordinary employee
in 1997 was around P4,400. That same employee would now be earning
P9,478, a 115% increase. This low income earner would have been in the
second income tax bracket in the 1997 National Internal Revenue Code,
but is now in the fourth bracket, and paying a higher tax.

One effect of this “bracket creep” can be seen in the inequitable tax
reality now where a middle-level employee with a monthly salary of
around P42,000 at the least is paying the same tax as billionaires such as
mall magnate Henry Sy and other Forbes 50 occupants. The former may
have started in one of the middle brackets in 1986 but eventually went up
to the top bracket.

It is therefore high time to adjust the income brackets to account for
inflation and enable our citizens to keep up with the rising cost of living, to
keep up with the nominal increases of wages and salaries, and to align our
system of income taxation more closely with the principles of equitability
and progressivity.

Our Constitution mandates government to establish an equitable
rule of taxation and to evolve a progressive system of taxation. Equity
requires that the distribution of the tax burden be heaviest on those who
can afford it, lightest on those can minimally bear it, even none on those
who cannot. Simply put, the rich should pay more, as against the poor who
should be made to pay less.

The taxpayer's ability to pay is likewise the foundation of
progressivity. To paraphrase the Supreme Court in a number of decisions,
progressive tax is the tool by which government can achieve a
redistribution of wealth and thereby realize the social justice provisions in
our Constitution. The mandate of progressive taxation is a directive to
Congress, just like the directive to give priority to the enactment of laws
for the enhancement of human dignity.


The salient provisions of this bill are:

1. An exemption from income taxation of low income taxpayers;

2. Asimplified and standardized “all-in” income tax regime for all
taxpayers liable under Section 24 (individual citizens and resident
aliens) whereby their minimum taxable income is set at P396,000
(the prevailing family living wage of P1,086 per day multiplied by 365
days), which amount already incorporates the various tax deductions
and exemptions under the current regime;

mi Restructured and simplified income brackets and their
corresponding tax rates, reflective of the principle of progressive
taxation;

4. Adjustment of the current highest tax base from P500,000 to
P2,700,000 to reflect adjustments in the Consumer Price Index
(1986-2014);

Creation of a new top bracket of 35% marginal rate for
individual taxpayers earning over P5,000,000, which bracket will
cover only around 2,452 taxpayers (0.04% of income tax filers), per
data from the NTRC;

6. A mandatory and automatic adjustment mechanism, with an
interval of three years, for government to index the amounts in the
brackets to their present value per the Consumer Price Index; and

4 Alignment of the Optional Standard Deduction (OSD) base for
individuals with that for corporations.

This bill is filed without prejudice to a comprehensive income tax
reform law that will also encompass corporate income tax, tax
administration, tax collection, among others, which will achieve equitable
and progressive taxation while increasing funds available for government
services and compensating for revenue loss at the same time. It should be
emphasized that passage of this legislative proposal, ahead of these
reforms that will definitely take more time, will provide for immediate and
much-needed economic relief for our people.


Approval of this bill is earnestly sought.

Rep. ANTONIO L. TINIO
ACT Teachers Party-List

‘ACT Teaghers Party-list


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City

SEVENTEENTH CONGRESS
First Regular Session

57

HOUSE BILL No.

Introduced by ACT Teachers Party-List
Rep. ANTONIO L. TINIO and Rep. FRANCISCA L. CASTRO

AN ACT
RESTRUCTURING THE INCOME BRACKETS AND RATES OF TAX IMPOSED ON
TAXABLE INCOME OF INDIVIDUALS, AMENDING FOR THE PURPOSE SECTIONS 24,
32, 33, 34, AND 35 OF THE 1997 NATIONAL INTERNAL REVENUE CODE OF THE
PHILIPPINES, AS AMENDED

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Section 24 of the 1997 National Internal Revenue Code (NIRC), as
amended, is hereby further amended to read as follows:

“SEC. 24. Income Tax Rates. —
(A) xxx
(1) xxx

“(2) Rates of Tax on Taxable Income of Individuals. The tax shall be
computed in accordance with and at the rates established in the following
schedule:


NOT OVER P396,000

OVER P396,000 BUT NOT OVER

640,000

OVER P640,000 BUT NOT OVER

1,000,000

OVER P1,000,000 BUT NOT OVER
_P1,650,000

OVER P1,650,000 BUT NOT OVER

P2,700,000

OVERP2,700,000 BUT NOT OVER

EXEMPT

10% OF THE EXCESS OVER
P396,000 :

24,400 + 15% OF THE EXCESS
OVERP640,000
P78,400 + 20% OF THE EXCESS
OVER P1,000,000 a
208,400 + 25% OF THE EXCESS
OVERP1,650,000
470,900 + 30% OF THE EXCESS

P5,000,000

OVER P5,000,000

OVER P2,700,000 |
805,000 + 35% OF THE EXCESS
OVER P5,000,000

“PROVIDED, THAT NOT LATER THAN JANUARY 1, 2019 AND EVERY THREE (3)
YEARS THEREAFTER, THE AMOUNTS HEREIN STATED SHALL BE ADJUSTED TO
THEIR PRESENT VALUE USING THE CONSUMER PRICE INDEX, AS PUBLISHED BY
THE NATIONAL STATISTICS OFFICE.

XXX

“[Provided, That minimum wage earners as defined in section 22 (HH) of this
Code shall be exempt from the payment of income tax on their taxable
income: Provided, further, That the holiday pay, overtime pay, night shift
differential pay and hazard pay received by such minimum wage earners shall
likewise be exempt from income tax.]”

SECTION 2. Section 32 of the NIRC, as amended, is hereby further amended to read
as follows:

“SEC. 32. Gross Income. —
(A) xxx
“(B) xxx

(1) xxx

“(7) Miscellaneous Items. —

a) xxx


“{(e) 13th Month Pay and Other Benefits. - Gross benefits received by
officials and employees of public and private entities: Provided, however, That
the total exclusion under this subparagraph shall not exceed Thirty thousand
pesos (P30,000) which shall cover:

““(i) Benefits received by officials and employees of the national and local
government pursuant to Republic Act No. 6686;

“(i) Benefits received by employees pursuant to Presidential Decree No 851,
as amended by Memorandum Order No. 28, dated August 13, 1986;

“(iii) Benefits received by officials and employees not covered by Presidential
Decree No 851, as amended by Memorandum Order No. 28, dated August 13,
1986;

“(iv) Other benefits such as productivity incentives and Christmas bonus:
Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be
increased through rules and regulations issued by the Secretary of Finance,
upon recommendation of the Commissioner, after considering, among others,
the effect on the same of the inflation rate at the end of the taxable year.]

“{(f) GSIS, SSS, Medicare, and Other Contributions. — GSIS, SSS, Medicare and
Pag-Ibig contributions, and union dues of individuals.}

“{(g)] (e) Gains from Sale of Bonds, Debentures or other Certificate of
Indebtedness. — Gains realized from the sale or exchange or retirement of
bonds, debentures or other certificate of indebtedness with a maturity of
more than five (5) years.

“{(h)] (f) Gains from Redemption of Shares in Mutual Fund. ~ Gains realized
by the investor upon redemption of shares of stock in a mutual fund company
as defined in Section 22(BB) of this Code.”

SECTION 3. Section 33 of the NIRC, as amended, is hereby further amended to read
as follows:

“SEC. 33. Special Treatment of Fringe Benefits. —

“(A) Imposition of Tax. - A final tax of (thirty-four percent (34%) effective
January 1, 1998; thirty-three percent (33%) effective January 1, 1999; and
thirty-two percent (32%) effective January 1, 2000 and thereafter, ]THIRTY
PERCENT (30%) is hereby imposed on the grossed-up monetary value of fringe
benefit furnished or granted to the employee [(except rank-and-file
‘employees as defined herein)] by the employer, whether an individual or a
corporation (unless the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the employer, or when the
fringe benefit is for the convenience or advantage of the employer). The tax


herein imposed is payable by the employer which tax shall be paid in the same
manner as provided for under Section 57(A) of this Code. The grossed-up
monetary value of the fringe benefit shall be determined by dividing the
actual monetary value of the fringe benefit by [sixty-six percent (66%)
effective January 1, 1998; sixty-seven percent (67%) effective January 1, 1999;
and sixty-eight percent (68%)effective January 1, 2000 and
thereafter:]SEVENTY PERCENT (70%): Provided, however, That fringe benefit
furnished to employees and taxable under Subsections (B), (C), (D) and (E) of
Section 25 shall be taxed at the applicable tax imposed thereat: Provided,
further, That the grossed-up MONETARY value of the fringe benefit shall be
determined by dividing the actual monetary value of the fringe benefit by the
difference between one hundred percent (100%) and the applicable rates of
income tax under Subsections (B), (C), (D) and (E) of Section 25.

“(B) Fringe Benefits Defined. — For purposes of this Section, the term “fringe
benefit” means any good, service, or other benefit furnished or granted in
cash or in kind by an employer to an individual employee [(except rank-and-
file employees as defined herein)] such as, but not limited to, the following:

Xxx

“(C) Fringe Benefits Not Taxable. — The following fringe benefits are not
taxable under this Section:

(1) xxx
(2) xxx

“{(3) Benefits given to the rank-and-file employees, whether granted under a
collective bargaining agreement or not; and]

“{(4)] (3) De minimis benefits as defined in the rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner.”

SECTION 4. Section 34 of the NIRC, as amended, is hereby further amended to read
as follows:

“SEC. 34, Deductions from Gross Income. — Except for taxpayers earning
compensation income arising from personal services rendered under an
employer-employee relationship where no deductions shall be allowed under
this section [other than under Subsection (M) hereof], in computing taxable
income subject to income tax under Sections 24(A); 25(A); 26; 27(A), (B) and
(C); and 28(A)(1), there shall be allowed the following deductions from gross
income:

“A)Xxx


XXX

“{(L) Optional Standard Deduction. ~ In lieu of the deductions allowed under
the preceding Subsections, an individual subject to tax under Section 24, other
than a nonresident alien, may elect a standard deduction in an amount not
exceeding forty percent (40%) of his gross sales or gross receipts, as the case
may be. In the case of a corporation subject to tax under section 27(A) and
28(A)(1), it may elect a standard deduction in an amount not exceeding forty
percent (40%) of its gross income as defined in Section 32 of this Code. Unless
the taxpayer signifies in his return his intention to elect the optional standard
deduction, he shall be considered as having availed himself of the deductions
allowed in the preceding Subsections. Such election when made in the return
shall be irrevocable for the taxable year for which the election is made:
Provided, That an individual who is entitled to and claimed for the optional
standard deduction shall not be required to submit with his tax return such
financial statements otherwise required under this Code: Provided, further,
That except when the Commissioner otherwise permits, the said individual
shall keep such records pertaining to his gross sales or gross receipts, or the
said corporation shall keep such records pertaining to his gross income as
defined in Section 32 of this Code during the taxable year, as may be required
by the rules and regulations promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.}

“[(M) Premium Payments on Health and / or Hospitalization Insurance of an
Individual Taxpayer. - The amount of premiums not to exceed Two thousand
four hundred pesos (P2,400) per family or Two hundred pesos (P200) a month
paid during the taxable year for health and/or hospitalization insurance taken
by the taxpayer himself, including his family, shall be allowed as a deduction
from his gross income: Provided, That said family has a gross income of not
more than Two hundred fifty thousand pesos (P250,000) for the taxable year:
Provided, finally, That in the case married taxpayers, only the spouse claiming
the additional exemption for dependents shall be entitled to this deduction.]”

SECTION 5. Section 35 of the NIRC, as amended, is hereby deleted, and a new Section
35 is hereby inserted to read as follows:

“SEC. 35. OPTIONAL STANDARD DEDUCTION. — IN LIEU OF THE DEDUCTIONS
ALLOWED UNDER THE PRECEDING SECTION, AN INDIVIDUAL SUBJECT TO TAX
UNDER SECTION 24, OTHER THAN A NONRESIDENT ALIEN, AND A
CORPORATION SUBJECT TO TAX UNDER SECTION 27(A) AND 28(A)(1), MAY
ELECT A STANDARD DEDUCTION IN AN AMOUNT NOT EXCEEDING FORTY
PERCENT (40%) OF ITS GROSS INCOME AS DEFINED IN SECTION 32 OF THIS
CODE. UNLESS THE TAXPAYER SIGNIFIES IN HIS RETURN HIS INTENTION TO.
ELECT THE OPTIONAL STANDARD DEDUCTION, HE SHALL BE CONSIDERED AS
HAVING AVAILED HIMSELF OF THE DEDUCTIONS ALLOWED IN THE PRECEDING


SUBSECTIONS. SUCH ELECTION WHEN MADE IN THE RETURN SHALL BE
IRREVOCABLE FOR THE TAXABLE YEAR FOR WHICH THE ELECTION IS MADE:
PROVIDED, THAT AN INDIVIDUAL WHO IS ENTITLED TO AND CLAIMED FOR THE
OPTIONAL STANDARD DEDUCTION SHALL NOT BE REQUIRED TO SUBMIT WITH
HIS TAX RETURN SUCH FINANCIAL STATEMENTS OTHERWISE REQUIRED UNDER
THIS CODE: PROVIDED, FURTHER, THAT EXCEPT WHEN THE COMMISSIONER
OTHERWISE PERMITS, THE SAID INDIVIDUAL OR CORPORATION SHALL KEEP
SUCH RECORDS PERTAINING TO HIS GROSS INCOME AS DEFINED IN SECTION
32 OF THIS CODE DURING THE TAXABLE YEAR, AS MAY BE REQUIRED BY THE
RULES AND REGULATIONS PROMULGATED BY THE SECRETARY OF FINANCE,
UPON RECOMMENDATION OF THE COMMISSIONER.

SECTION 6. Repealing Clause. — All laws, executive and administrative orders or
parts thereof, inconsistent with any provision of this Act are hereby repealed or
modified accordingly.

SECTION 7. Effectivity. - This Act shall take effect after fifteen (15) days following
the completion of its publication in the Official Gazette or in a national newspaper of
general circulation.

Approved,