RECEIVED
18 JUL 2016

Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

H. B. No. 1657

REGISTRATION UNIT
BILLS AND INDEX SERVICE

Introduced by HONORABLE BELLAFLOR J. ANGARA-CASTILLO

EXPLANATORY NOTE

Our 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. Unfortunately, individual income tax rates and brackets in the
country have remained unchanged since 1997 even when the consumer price index has more than
doubled while inflation rate has steadily risen. Both factors have substantially decreased the
purchasing power of ordinary Filipinos.

Given our outdated and inequitable tax system, middle-income earners are already at the top tax
bracket and are paying the same tax rate as the billionaires in the country. This phenomenon is
called "bracket creep" where taxpayers who are not considered high earning are already pushed into
high brackets. This bracket creep would lead to “fiscal drag" where people will not have any
purchasing power left to contribute to the economy due to excessive taxation.

If we leave our brackets without provisions for indexation or automatic adjustment, at some point,
‘even our young graduates who have just entered the workforce will fall into this highest bracket. If
the status quo remains, the middle class will continue to be pulled down into lower-income groups
despite an increase in their salaries because they are pushed up into higher tax brackets,

This bill, which aims to update and amend our tax system, is also in line with the Philippines’
commitment to the ASEAN Economic Community (AEC) Blueprint that would transform ASEAN into
a single market and production base. While the ASEAN Blueprint does not mandate member
countries to amend their income tax schedules, itis highly expected that human capital would flow to
where it could earn best. When the AEC Declaration was signed in 2007, some member-states
began to lower their corporate and individual income tax rates, with further reductions in the
subsequent years.

This bill also aims to make the tax table consistent with RA 9504 which exempts the income of the
minimum wage earners from income taxes. Thus, this bill sets the lowest tax bracket at R70,000
taxable income taking into consideration the prevailing minimum wage,

‘At present, the Philippines has the second highest individual income tax rate in the region at 32
percent next to Thailand and Vietnam's 35 percent. In order for the Philippines to become more
‘competitive in the region, attract human capital and prevent the migration of our own, it is imperative
that we maintain the progressivity of our income tax system.

Our main objective is to build our middle class and help Filipino families—the foundation of our
society. With bigger take-home pay, the family can spend more on their basic necessities, and can
save more for their future. Taxation is not just a way for the government to raise revenue; it is also a
means to build a more humane and just society, and to ensure upward mobility. In a highly unequal
society like ours, genuine tax reform that ensures progressive taxation and income redistribution
‘would promote social justice and would lead to greater equity and economic growth,

In view of the foregoing, the passage of this bill is earnestly sought.

His
Bet R bod lbsamse

zepresentative
Lone District, Province of Aurora

HOUSE OF REPRESENTATIVES



SEVENTEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES —)
FIRST REGULAR SESSION )

1657
H. B. No.

Introduced by HONORABLE BELLAFLOR J. ANGARA-CASTILLO

AN ACT
AMENDING SECTION 24 OF THE NATIONAL INTERNAL REVENUE CODE
OF 1997, AS AMENDED, AND FOR OTHER PURPOSES

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

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

"Sec. 24. Income Tax Rates. -

(A) Rates of Income Tax on Individual Citizen and Individual
Resident Alien of the Philippines. —

“(1) An income tax is hereby imposed:

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:
“TAXABLE INCOME TAX RATE
NOT OVER P70,000 0%
OVER P70,000 BUT NOT OVER P175,000 15%
OVER P175,000 BUT NOT OVER R350,000 26,250 + 20% OF
EXCESS OVER
175,000
OVER R350,000 BUT NOT OVER P625,000 61,250 + 25% OF
EXCESS OVER
350,000

OVER R625,000 BUT NOT OVER 1,250,000 130,000 + 30% OF
EXCESS OVER
625,000

ABOVE 1,250,000 317,500 + 32% OF
EXCESS OVER
1,250,000

“For married individuals, the husband and wife, subject to the provision of
Section 51 (D) hereof, shall compute separately their individual income tax based
on their respective total taxable income: Provided, That if any income cannot be
definitely attributed to or identified as income exclusively earned or realized by

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either of the spouses, the same shall be divided equally between the spouses for
the purpose of determining their respective taxable income.

“Provided, also, 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.

"(3) ADJUSTMENTS IN THE TAX SCHEDULE SO THAT INFLATION
WILL NOT RESULT IN TAX INCREASES.

“(A) IN GENERAL. ~ FOR EVERY THREE (3) TAXABLE YEARS AFTER
THE EFFECTIVITY OF THIS ACT, THE PRESIDENT OF THE PHILIPPINES
SHALL PRESCRIBE A TAX SCHEDULE WHICH SHALL APPLY IN LIEU OF
THE TAX SCHEDULE CONTAINED IN SUBSECTION (2).

“(B) METHOD OF PRESCRIBING THE SCHEDULE. - THE SCHEDULE
WHICH UNDER PARAGRAPH (A) IS TO APPLY IN LIEU OF THE SCHEDULE
CONTAINED IN SUBSECTION (2), SHALL BE PRESCRIBED —

“(1) BY INCREASING THE MINIMUM AND MAXIMUM PESO
AMOUNTS FOR EACH RATE BRACKET FOR WHICH A_TAX IS
IMPOSED TO ITS PRESENT VALUE USING THE CONSUMER PRICE
INDEX (CPI) FOR SUCH CALENDAR YEAR, AS PUBLISHED BY THE
PHILIPPINE STATISTICS AUTHORITY (PSA): PROVIDED, THAT IN
THE EVENT THAT SAID AUTHORITY SHALL CEASE TO PUBLISH
SAID INDEX FIGURE, THEN ANY SIMILAR INDEX BY ANY OTHER
DEPARTMENT, BUREAU OR OFFICE OF THE GOVERNMENT SHALL
BE USED IN ITS PLACE;

“(2) BY NOT CHANGING THE RATE APPLICABLE TO ANY
RATE BRACKET AS ADJUSTED UNDER SUBPARAGRAPH (1); AND.

“(3) BY ADJUSTING THE AMOUNTS SETTING FORTH THE
TAX TO THE EXTENT NECESSARY TO REFLECT THE
ADJUSTMENTS IN THE RATE BRACKETS.”

SEC. 2. Implementing Rules and Regulations. Within thirty (30) days from the effectivity of
this law, the Secretary of Finance shall, upon the recommendation of the Commissioner of
Internal Revenue, promulgate and publish the necessary rules and regulations for the
effective implementation of this Act: Provided, That, the failure of the Secretary of Finance to
promulgate the said rules and regulations shall not prevent the implementation of this Act upon
its effectivity.

SEC. 3. Repealing Clause. All laws, orders, issuances, circulars, rules and regulations or parts
thereof, which are inconsistent with the provisions of this Act are hereby repealed or modified
accordingly.

SEC. 4. Separability Clause. If any provision of this Act is declared unconstitutional or invalid,
other parts or provisions hereof not affected thereby shall continue to be in full force and effect.

SEC. 5. Effectivity. This Act shall become operative and apply on the taxable years beginning
on or after January 1, 2017 following its publication in the Official Gazette or in at least two (2)
newspapers of general circulation.

Approved,

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