Tax break

After the income-eroding and mood-depressing news on power rate hikes, gasoline price increases and monster traffic in the metropolis, the struggling middle class is given hope of relief through a long-overdue tax break. Senate President Franklin Drilon last week expressed optimism that before Congress goes on recess in March, it could pass a bill increasing to P75,000 the amount of the 13th-month pay, Christmas bonus and other benefits that would be exempted from income tax.

Drilon said members of the Senate and the House were aware of the need to review old provisions of the law “to provide relief to state and private workers whose purchasing power has been shrinking for years due to inflation, but still have had to deal with the consequences of an outdated law.” Republic Act No. 7833 set the P30,000 cap on tax-exempt bonuses in 1994 when the lowest monthly basic salary for government employees was P2,800, with the president receiving only P25,000 a month. These figures are no longer reflective of current economic realities as the basic salary of government employees now averages P9,000, with the highest salary grade, that of President Aquino, at P120,000 a month.

Senate Bill No. 256, authored by Sen. Ralph Recto, will not only raise the tax-exempt ceiling to P75,000 but also adjust this ceiling every three years to arrive at a new value that takes into account the impact of inflation on salaries. Recto explained the situation very clearly: “We owe it to the people to amend laws that tend to be more repressive rather than beneficial to [them]. In this bill, we intend to breathe life again to the spirit of the law that, during the time of its passage, was intended to allow the people to enjoy more of their hard-earned money.” If the bill is passed, “the increase in the tax exemption ceiling would translate to a higher take-home pay for employees in the private and government sectors alike, particularly during the Christmas season, when the 13th-month pay and other bonuses are usually released,” he said.

As expected, Internal Revenue Commissioner Kim Henares has opposed the bill, warning that it would cut government revenues by at least P43 billion a year. She claimed that additional tax exemptions at this time would put the country at risk of losing its investment-grade status. Recto countered that the grant of additional tax exemptions to employees would still benefit the economy because it would mean more money to spend, which, in turn, would stimulate economic growth.

Henares’ opposition owes to the fact that the Bureau of Internal Revenue has been failing to meet its collection targets. In 2013, collections amounted to P1.217 trillion. While up by 15 percent from 2012, it was short of the official target of P1.253 trillion as the BIR’s revenue-generation measures continue to be overwhelmed by widespread tax delinquencies. This, in turn, is the reason Henares had been subjecting as many sectors as possible to tighter audit. The measures include the Run After Tax Evaders program, under which the BIR files tax evasion cases with the Department of Justice once every two weeks. More than 200 tax evasion cases have been filed with the DOJ since the start of the Aquino administration, but the BIR has yet to win a conviction.

The BIR also issued several revenue regulations directed at professionals, including the controversial one issued last year requiring hospitals, health maintenance organizations, and clinics to withhold the income tax liabilities of doctors and other medical practitioners. Another was the regulation requiring organizers of the mass-market  tiangge  (flea markets) to withhold the tax liabilities of stall owners.

The zeal of the BIR in collecting as much taxes as it can will be commendable if it does not concentrate on the ordinary people who daily find it difficult to make both ends meet. As the Trade Union Congress of the Philippines commented in the course of expressing support for Recto’s bill, Henares should stop preying on ordinary workers and instead train her agency’s guns on big corporate and business tax evaders.

The salaried middle class comprises the people that empowered the Aquino administration. They deserve such relief as the tax break on bonuses in order to have a respite from the series of unfortunate economic events that have eroded their purchasing power.