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Higher Filipino Bonus Cap Backed By Lawmakers

by Mary Swire,, Hong Kong

20 November 2014

While the House of Representatives passed its version of the bill in September this year, the Philippines Senate has now approved at second reading its bill that seeks to increase the present individual income tax exemption cap for 13th month pay and other benefits from the current PHP30,000 (USD665) to PHP82,000.

The original proposal in the Senate, in fact, 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.

"One peso in 1994 is worth 36 centavos today. Adjusted for inflation, the PHP30,000 should be PHP82,300 today. That is why we have pegged the new cap at PHP82,000," Recto said.

Supporters of the proposal have also pointed out that the present tax exemption cap, which covers the 13th month pay and other benefits, such as productivity incentives and Christmas bonuses, given to both government and private sector employees, was set when the lowest monthly basic salary for Government employees was PHP2,800. The lowest monthly pay now stands at PHP9,000.

In addition, Recto pointed out that, at the time when the exemption was originally enacted, "the idea was that, when all government employees got their 13th month pay, it would be in full and without tax deduction."

"In order for this injustice not to happen again because we left our system unchanged and outdated, our proposed measure mandates that adjustments are be made every three years, taking into account inflation," Angara added.

If it finally becomes law, the measure is expected to benefit approximately half a million employees, with the Department of Finance projecting the resultant revenue loss at over PHP30bn. Nevertheless, others advising the Senate have suggested that the revenue impact could be as little as only PHP3bn, due to the fact that the additional income would be spent on goods that are then subject to tax.

It has been hoped that the legislation could be effective in time for Christmas this year. However, even if the Senate bill is passed on a third reading, it will then require a parliamentary conference to iron out the differences between the Senate and House bills. The latter, for example, caps the new increased exemption at PHP70,000.

TAGS: individuals | Finance | tax | law | employees | Philippines | ministry of finance | legislation | tax breaks | legislation amendments | inflation | individual income tax

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