Republic of the Philippines HAUSE OF REPRESENTATIVES
HOUSE OF REPRESENTATIVES RE ea IVED
Quel 9 pare, 14 Wl 2016

ATE:

SEVENTEENTH CONGRESS roe
First Regular Session ey: s

House pit no, 1604 RFCISTRATION UNIT
BULLS WX.) INdEX SERVICE

Introduced by REP. TEDDY BRAWNER BAGUILAT

EXPLANATORY NOTE

Article VI, Section 28 of the 1987 Constitution provides that “the rule on taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of taxation.”

In terms of individual income tax, the Philippines has currently the second highest
individual income tax rate at 32 percent in the ASEAN region, next to Thailand and Vietnam's 35
percent. Ms. Rosario Manasan, in a 2016 study published by the Philippine Institute for
Development Studies (PIDS), applied the personal income tax rate schedules of the different
ASEAN countries to a broad range of alternative gross personal income levels by expressing
‘said tax rate schedules in peso terms using the 2014 purchasing power parity (PPP) exchange
rates to illustrate the personal income tax burden in the Philippines as compared to its ASEAN
neighbors. The study confirmed ‘that the effective tax rates as well as the nominal peso tax
liability for a broad range (but not the entire range) of gross personal income levels are indeed
higher when the Philippine rate schedule is applied compared to those when the rate schedules
of the other ASEAN member countries are used.”

Also, there is a compelling need to address the resulting bracket creep in the personal
income tax rate system considering the fact that the Tax Code of 1997, specifically, the income
brackets used has remained unchanged since 1998. Bracket Creep occurs when inflation drives
tax payers into higher income brackets thereby resulting in higher tax liability and lower
disposable income in real terms. Eighteen (18) years after, the failure to adjust the income
brackets to consider the effects of inflation in the disposable income of an ordinary worker in
real terms must be addressed.

‘According to Mr. Ronilo Balbieran, a research associate from Research, Education, and
Institutional Development (REID) Foundation, “those who were presumed to be high middle
class and rich in the 1997, and therefore taxed heavily, are not the same income class today.
They may be very much poor and most especially the middle income class."

‘As mandated by the Constitution, this Bill moves Congress to act in evolving a
progressive tax system, that is, to tax the people according to their ability to pay. It seeks to
address the twin concerns of the Philippines having one of the highest tax rates in the ASEAN
Region and the problem of bracket creep by proposing a simpler 5-income bracket system and


lowering income tax rates. It seeks to address the disparity caused by inflation and to ease the
tax burden caused by bracket creep upon our workers.

For the forgoing reasons, the consideration and approval of this Bill is earnestly urged.

TEDDY BRAWNER BAGUILAT
tative, Lone District of Ifugao


Republic of the Philippines
HOUSE OF REPRESENTATIVES
‘Quezon City

SEVENTEENTH CONGRESS
First Regular Session

House Bit No. _1604

Introduced by REP. TEDDY BRAWNER BAGUILAT

AN ACT
ADJUSTING THE LEVEL OF NET TAXABLE INCOME AND NOMINAL TAX RATES FOR
PURPOSES OF PROMOTING THE INDIVIDUAL INCOME TAX, AMENDING SECTION 24 (A)
(2) 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) (2) of the National internal Revenue Code of 1997, as
amended, is hereby further amended to reflect the following rates of tax on taxable income for
individual wage and salary eamers only

“Sec. 24. Income Tax Rates. —

"(A)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 P10,000] ~ [5%]

[Over P10,000 but

Not over P30,000] F [P500 + 10% of the excess over P10,000]
{Over P30,000 but

not over P70,000} ..  [P2,500 +15% of the excess over P30,000]
NOT OVER P300,000 «EXEMPT

Over [P70,000] P300,000

but not over [P140,000]

600,000 ..  [P8,500] 10%

‘Over [P140,000] P600,000


but not over [P250,000]

P1,000,000 sie [P22,500] P50,000 + [25%] 15% of the
excess over P600,000

Over [P250,000] P1,000,000

but not over [P500,000)

P2,500,000 wa [P50,000] P120,000 + [30%] 20% of the
excess over P1,000,000

Over [P500,000]

2,500,000 P220,000 + 25% of the excess over
2,500,000

"XXX

"XXX

“PROVIDED, FINALLY THAT NOT LATER THAN SIX (6) YEARS AFTER THE
EFFECTIVITY OF THIS ACT AND EVERY SIX (6) YEARS, THEREAFTER, THE NET
TAXABLE INCOME LEVELS AND NOMINAL TAX RATES HEREIN STATED SHALL BE
ADJUSTED TO ITS PRESENT VALUE USING THE CONSUMER PRICE INDEX, AS
PUBLISHED BY THE PHILIPPINE STATISTICS AUTHORITY (PSA).”

SEC. 3. Implementing Rules and Regulations. - Within sixty (60) days from the
effectivity of this Act, the Secretary of the Department of Finance (DoF) and the Commissioner
of the Bureau of Intemal Revenue (BIR) shall promulgate the necessary rules and regulations to
implement the provisions of this Act.

SEC. 4. Repealing Clause. - Sections 35 (A) (B) and (C) of the National Internal
Revenue Code of 1997, as amended, are hereby repealed. All other existing laws, presidential
decrees, executive orders, proclamations or administrative regulations that are inconsistent with
the provisions of this Act are hereby amended, modified or repealed accordingly.

SEC. 5. 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 take effect fifteen (15) days following its publication
in the Official Gazette or at least two (2) newspapers of general circulation.

Approved,