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Filipino Bonus Tax Exemption Increase Passed

by Mary Swire,, Hong Kong

01 December 2014

On November 26, the Philippines Senate passed a bill to increase the present individual income tax exemption cap for 13th month pay and other benefits, such as productivity incentives and Christmas bonuses, from PHP30,000 (USD670) to PHP82,000.

It had been hoped that the legislation could be effective in time for Christmas this year. However, following a reported request from the Department of Finance (DOF) for a delay beyond the end of this budgetary year, and because the DOF and the Bureau of Internal Revenue will need time to produce the necessary implementing rules and regulations, it is now expected that the Bill will become fully effective in 2015.

In addition, as the House of Representatives passed its own version of the Bill in September this year that caps the new increased exemption at PHP70,000, a bicameral parliamentary conference will be required to iron out the differences between the Senate and House Bills.

The original proposal in the Senate was aimed at increasing the ceiling to PHP75,000, but the Chairman of the Senate Ways and Means Committee, Juan Edgardo Angara, accepted an amendment by Senator Ralph Recto to raise it to PHP82,000. It was pointed out that an increase to PHP82,000 in October 2014 would be equivalent to the value of PHP30,000 in 1994, when the exemption was enacted.

Recto noted that, in 1994, "The idea was that, when all Government employees got their 13th month pay, it would be in full and without tax deduction." Senate President Franklin Drilon added that the Bill's passage was necessary so as "to provide relief to state and private workers whose purchasing power has been shrinking for years due to inflation."

When it finally becomes law, the measure is expected to benefit approximately half a million employees in both the public and private sectors. The DOF has projected the resultant revenue loss at PHP42bn, but others advising the Senate have suggested that the revenue impact could be as little as PHP5bn, due to the fact that the additional income received by the employees is likely to be spent on goods that are then subject to tax.

TAGS: Finance | tax | law | employees | Philippines | legislation | tax breaks | inflation | individual income tax

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