HOUSE OF REPRESENTATIVES
RECEIVED

Quezon City
SEVENTEENTH (17TH) CONG
First Regular Session

NUNIT
Bus u pay SERVICE

House Bill No, 29° 1se6

Introduced by: Rep. BERNADETTE R. HERRERA-DY

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

EXPLANATORY NOTE

This bill aims to reduce the burden of taxation on individuals. This bill is a
consolidation of a number of prior House and Senate bills, and reproduces in part and builds
upon these earlier versions.'

Philippine income tax rates remains to be among the highest in the ASEAN region.
According to the Tax Management Association of the Philippines (TMAP), a Filipino individual
earning Php 500,000 annually is taxed at 32%, whereas, equivalent incomes are taxed lower in
the rest of the region; Vietnam and Cambodia at 20%, Laos at 12%, Malaysia at 11%, Thailand
at 10%, and Singapore at 2%, This will be disadvantageous for the incoming ASEAN Economic
Integration (AEC).

Official data from the National Wages Productivity Commission show that as of January
2015, the daily minimum wage rate in Metro Manila, the highest nationwide, is at P466 per day,
while the lowest is at P213 received by agricultural and non-agricultural workers in the Ilocos
region. These translate to an annual income of about P123,000 for minimum wage earners in
Metro Manila and about P56,232 for the Ilocos region.

While a minimum wage eamer is tax-exempt, such dismal levels of income are still way
below the Family Living Wage or “the minimum amount needed by a family of six members to
meet its daily food and non-food needs, plus a 10 percent allocation for savings.” Compounding
such situation is the prevailing tax system where by getting additional income no matter how
small in excess of the minimum wage, the whole income now becomes taxable.

Thus, the call to equitably adjust and restructure the income tax rates and tax brackets to
provide immediate relief to individual taxpayers. Reducing the individual’s tax burden will
translate to greater investment in health, education, and other basic necessities, and will generally
increase one’s disposable income.

Because income tax brackets remained frozen since 1997 without having been adjusted
for current prices, individual taxpayers continue to suffer from a “bracket creep”. Consumer
Price Index (CPI) data suggests that commodity prices have almost doubled from 1998 to 2013.
salaries have also moved together with the rise in commodity prices. Since tax brackets have not

' See, e.g., S.B. 1994 (16" Congress, Sen. Poe); H.B. 5401 (16" Congress, Reps. Colmenares & Zarate).


been adjusted, more workers are being pushed into higher tax brackets and face higher tax rates.
Those who are not generally considered high earners are now paying income tax applicable to
billionaires. Purchasing power has drastically weakened. This situation is more apparent for
selected professions such as teachers. 2001 data shows 61% of the teachers are in bracket 4. By
2013, only 21% remained and most of them have been pushed into brackets 5 and 6. If left
uncorrected, this will diminish the progressivity of the taxation system.

This bill seeks to introduce automatic indexation for inflation every 6 years without need
for additional legislation. Other features of this bill includes an increase of the tax-exempt
bracket. Increasing the tax bracket will protect those beyond minimum wage earners and will
include low earners.

Premises considered, immediate passage of this bill jg earnestly sought.



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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH (17TH) CONGRESS
First Regular Session

House Bill No. 1506
Introduced by: Rep. BERNADETTE R. HERRERA-DY

AN ACT
RESTRUCTURING THE INCOME BRACKETS AND RATES OF TAX IMPOSED ON
TAXABLE INCOME OF INDIVIDUALS, AMENDING FOR THE PURPOSE
SECTIONS 24, 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. It is observed in our jurisdiction that taxes is the lifeblood of the
government and that it should be just, equitable, progressive, uniform and must be a tool of
social justice. As such, the adjustment and restructuring of income tax rates and tax brackets
must be advanced providing economic relief to individual taxpayers.

SECTION 2. Section 24 of the 1997 National Internal Revenue Code, 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 Exempt

‘Over P396,000 but not over P640,000 10% of the excess over P396,000

‘Over P640,000 but not over P1,000,000 24,400 + 15% of the excess over P640,000

Over P1,000,000 but not over P1,650,000 P78,400 + 20% of the excess over P1,000,000

‘Over P1,650,000 but not over P2,700,000 208,400 + 25% of the excess over
1,650,000

‘Over P2,700,000 P470,900 + 30% of the excess over
P2,700,000

“PROVIDED, THAT EVERY SIX (6) YEARS THEREAFTER, THE AMOUNTS HEREIN


STATED SHALL BE ADJUSTED TO THEIR PRESENT VALUE USING THE CONSUMER
PRICE INDEX, AS PUBLISHED BY THE PHILIPPINE STATISTICS AUTHORITY.
“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.]

Xxx.”

SECTION 3. Section 33 of the 1997 National Internal Revenue Code, 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), (©), (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.

XXX,


SECTION 4. Section 34 of the 1997 National Internal Revenue Code, 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.]

XXX.”

SECTION 5. Section 35 of the 1997 National Internal Revenue Code, as amended, is
hereby deleted and in its place, a new Section 35 is 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

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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,