Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILLNO.__ 3629

Sponsored by HON. RANEO E. ABU
2 District of Batangas

Explanatory Note

This bill seeks to amend Section 32 (B) (7) (e) Chapter VI of the National
Internal Code of the Philippines as amended by increasing the Thirty Thousand
Pesos (Php 30,000.00) ceiling of the 13" Month Pay, Christmas Bonus and other
benefits excluded from the computation of gross income for the purposes of
income taxation.

Poverty and gross inequalization are major problems besetting the nation
The labor sector, the so called primary social economic force in our country, is
specifically affected by these problems.

In view of the foregoing underlying premises, Section 9, Article II of the
1987 Philippine Constitution states that: “The State shall promote a just and
dynamic social order that will ensure the prosperity and independence of the nation
and free the people from poverty through policies that provide adequate social
services, promote full employment, a rising standard of living, and an improved
quality of life for all.”

Corollary to this, under Section 18, Article II of the Constitution, it is
also the State's policy to affirm labor as a primary social economic force by
protecting the rights of workers and promote their welfare.

Adhering to the policies mandated by the Constitution to promote economic
equalization and to tilt the balance of social forces by favouring the
disadvantaged in life thereby alleviating the plight of the lowly working
individuals, our laws exclude the mandated 13th month pay and the Christmas
bonus from the coverage of income taxes, but only up to the extent of P30,000.
Hence, the excess would form part of an individual’s gross income and would be
subject to the income tax.

Section 32 (B) (7) (e) of the National Internal Revenue Code, as amended,
exempts from income tax the benefits mentioned in Presidential Decree No. 851 as
amended by Memorandum Order No. 28 or the 13th Month Pay Law; Republic
Act No. 6686 or the Law Authorizing the Grant of Christmas Bonus to National
and Local Government Officials and Employees; and other benefits such as
productivity incentives and other Christmas bonuses to the extent of P30,000.00.

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Republic Act No. 7833 which was passed into law in 1994 specifically
excludes the benefits found under the laws mentioned above from the
computation of gross compensation for purposes of determining taxable
compensation income, The ceiling of the coverage of the exclusion is only up
to P30,000.00. However at that time, the lowest monthly basic salary for
government employees (Salary Grade 1, Step 1) was P2,800 and that of the
President of the Philippines (Salary Grade 33) was at P25,000. At present, the
basic salaries have been adjusted such that SG-1 Step 1 now stands at P9,000 and
SG-33 is at P120,000.

While there have been increases in the legislated pay scale of private and
government personnel, the P30,000 cap for the income tax exemption of the 13"
month pay and Christmas bonuses have remained the same. This amount no longer
mirrors prevailing circumstances.

This bill moves to increase the ceiling of the 13" Month Pay and other
benefits to be exempted from income tax to SEVENTY FIVE THOUSAND
PESOS ( P75,000.00). The passage of this bill is considered more responsive to
the needs of the times.

If adjustments for inflation were reckoned from 1994, the National Tax
Research Center (NTRC) and National Economic Development Authority (NEDA)
peg the exemption ceiling estimates as of 2011 at P72,000' and P75,000°
respectively.

Furthermore, the bill also provides that the ceiling of P75,000 shall be
adjusted to its present value using the Consumer Price Index (CPI) as published by
the National Statistics Office (NSO), three years after the measure’s effectivity and
every three years thereafter.

The law should always be responsive to the needs of the people. An increase
in the ceiling of the 13" Month Pay and other benefits to be exempted from income
tax is one of the reliefs the people need during these hard times.

Due to the foregoing, the passage of this measure is sincerely sought.

' NTRC position paper dated 23 March 2011
? NEDA position paper dated 06 February 2012
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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILLNO.__ 38629

Sponsored by HON. RANEO E. ABU
2" District of Batangas

AN ACT
INCREASING THE CEILING OF THE 13TH MONTH PAY, CHRISTMAS BONUS
AND OTHER BENEFITS EXCLUDED FROM THE COMPUTATION OF GROSS
INCOME FOR THE PURPOSES OF INCOME TAXATION, AMENDING FOR THE
PURPOSE SECTION 32 (B), CHAPTER VI OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997, AS AMENDED

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

Section 1. Section 32 (B), Chapter VI of the National Intemal Revenue Code of the
Philippines (R.A. No, 8424) is hereby amended as follows:

SEC. 32. Gross Income.

“(A) General Definition. ~ xxx

“XXX

(B) Exclusions from Gross Income. ~ The following items shall not be included in
gross income and shall be exempt from taxation under this title:
Sx
(7) Miscellaneous Items. —
“sxx

(©) 13" 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 (P 30,000)] SEVENTY-FIVE THOUSAND PESOS (875,000) which

shall cover:

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20

21

22

(i) Benefits received by officials and employees of the national
and local government pursuant to Republic Act No. 6686;
(ii) 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; and
(iv) Other benefits such as productivity incentives and Christmas
bonus: [Provided, further, That the ceiling of Thirty thousand
pesos (R 30,000) 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.
PROVIDED, THAT NOT LATER THAN THREE YEARS AFTER
THE EFFECTIVITY OF THIS ACT AND EVERY THREE (3) YEARS
THEREAFTER, THE AMOUNT HEREIN STATED SHALL BE
ADJUSTED TO ITS PRESENT VALUE USING THE CONSUMER PRICE
INDEX, AS PUBLISHED BY THE NATIONAL STATISTICS OFFICE

(NSO).

Se
SEC. 2. Repealing Clause. — All laws, decrees, resolutions, orders or ordinances or parts
thereof inconsistent with this Act, are hereby repealed, amended or modified accordingly.
SEC. 3. Effectivity. — This Act shall take effect fifteen (15) days after its publication in
the Official Gazette or in at least two (2) newspapers of general circulation.

Approved,

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