Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

5401

HOUSE BILL No..

Introduced by BAYAN MUNA
Rep. NERI J. COLMENARES and Rep. CARLOS ISAGANI T. ZARATE,

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

On July 31, 1986, Executive Order No. 37 was issued by then President Corazon Aquino
amending certain provisions of the old NIRC, introducing for the first time a consolidated tax
table for pure compensation income earners, professionals and businessmen/self-employed
individuals. Under said amendment, taxpayers were divided into ten (10) income brackets, the
top tax base set at P500,000.

Since 1986, however, these tax bases remain substantially unchanged. Meanwhile, based
on the 1986 to 2014 Consumer Price Index published by the NSO, national consumer prices
have increased by % since 1986. Thus, the P500,000 top tax base, if adjusted to its present
value, is now equivalent to P2,697 million,

With the current income tax brackets and tax rates, the Philippines effectively imposes
the highest personal income tax in the entire Association of Southeast Asian Nations (ASEAN)
region. A study presented by the Tax Management Association of the Philippines reveals that
while a Filipino individual earning P500,000 annually is taxed at 32%, his ASEAN neighbors
with equivalent income are taxed at the following rates: Vietnam - 20%; Cambodia - 20%; Laos -
12%; Malaysia - 11%; Thailand - 10%; Singapore - 2%; and Brunei - no taxes.

Against such backdrop, a great majority of Filipinos would have to content themselves
‘with meager salaries. 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
466 per day, while the lowest is at P213 received by agricultural and non-agricultural workers in
the Hocos 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.” As of August
2014, Family Living Wage is at P1,086 daily (P396,390 annually) as shown by independent think-
tank Tbon Foundation estimates. 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 has been advanced not only by taxpayers
themselves but even by tax managers and practitioners, In fact, even the tax collecting agencies --
the Department of Finance and the Bureau of Internal Revenue -- recognize the need for such
tax adjustments.

Al told, this bill seeks to:

1, Exempt low income families/eamers from income taxation;

Fix, simplify and standardize the minimum taxable income among the varied types of

individual taxpayers at P396,000 (the prevailing family living wage of P1,086 per day

multiplied by 365 days), incorporating therein the various tax deductions /exemptions;

3. Restructure and simplify the income brackets and their corresponding tax rates;

Reduce and align the maximum tax rate with that of corporate taxpayers (from 32% to 30%);

5. Adjust the top tax base -- from P500,000 to P2,700,00 ~ to reflect adjustments in the
Consumer Price Index (1986-2014);

6. Establish an automatic adjustment/indexation mechanism (interval of 3 years); and

7. Align the Optional Standard Deduetion (OSD) base for individuals with the OSD base for
corporations;

+

Passage of this bill is thus earnestly sought.

Approved,

ft Chey” ‘
J. siti alee RSD eave

Bayan Mua Party-ict Bayan Muna Party-list


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILLNo._S404

Introduced by BAYAN MUNA
Rep. NERI J. COLMENARES and Rep. CARLOS ISAGANI T. ZARATE

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, as amended, is hereby

further amended to read as follows:
“SEC. 24, Income Tax Rates. —
(A) xxx

(1) xxx

“() 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:

jot over P396,000

[Exempt

et P396,000but not over P640,000

[10% of the excess over P396,000

Sver P640,000but not over P1,000,000

[P24,400 + 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 P1,650,000but not over P2,700,000

[P208,400 + 25% of the excess over P 1,650,000]

|Over P2,700,000

[P470,900 + 30% of the excess over P2,700,

“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.

“sexe


“[Provided, ‘That minimum wage eamers 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 2. Section 32 of the 1997 National Internal Revenue Code, as amended, is hereby
further amended to read as follows:

“SEC. 32. Gross Income. ~
(A) xxx
*(B) xxx
(1) xxx
“0
(7) Miscellaneous Ttems. —
(a) xx
“00x
“(© 13 Month Pay and Other Benefits, ~ Gross benefits received by officials and

employees of public and private entities: Promded, however, That the total exclusion under
this subparagraph shall not exceed ‘Thirty thousand pesos (P30,000) which shall cover:

“@) 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;

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

“(v) Other benefits such as productivity incentives and Christmas bonus:
Provided, further, That the ceiling of Thiety 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]

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



“{(@1 (©) Gains from Scale of Bonds, Debentures or other Cerificate 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.

“[(0)] Q Gains fram 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.

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 (6%) 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%): Pronided, however, That fringe benefit furnished to employees and
taxable under Subsections (B), (C), (D) and (F) 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 pusposes of this Section, the term ‘Jringe 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:

‘xx

“(© Fringe Bengfits Not Taxabl, ~The following fringe benefits are not taxable
under this Section:

(1) xxx
(2) xxx

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


“[(9)]_@) 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 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

ox

“{() 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, a new Section 35 is hereby inserted to read as follows:

“SEC. 35. OPTIONAL STANDARD DEDUCTION. ~ IN LEU 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 OTHERWI: z
THIS CODE: PROVIDED, FURTHER, THAT
COMMISSIONER OTHERWISE PERMITS, THE SAID INDIVIDUAL OR
CORPORATION SHALL KEEP SUCH RECORDS PERTAINING TO HIS GROSS
INCOME AS DEFINED IN SECTION 32 OF THIS C 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 lavs, executive and administrative orders or parts
thereof, inconsistent with any provision of this Act are hereby repealed or modified accordingly.

SECTION 7. Bffectivity, - 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,