Tax break setback

Salaried workers were elated when Senate President Franklin Drilon announced last month that it could be a merrier Christmas for many of them this year. He said the Senate had planned to approve before yearend a bill allowing workers to take home bigger bonuses.

This bill seeks to increase to P75,000 from P30,000 the ceiling for tax-exempt bonuses of both government and private-sector employees. The House of Representatives approved its version on third reading last month, but set the ceiling at P70,000. Sen. Sonny Angara, chair of the Senate ways and means committee and the principal author of the bill, had shared Drilon’s optimism.

Last week came the sad truth that the bill could not make it in time to cover the Christmas bonuses this year. Drilon himself admitted that there was little time to ensure that the bill would apply to December bonuses

because, assuming the bill is passed into law today, it would still need the implementing rules and regulations from the Bureau of Internal Revenue. The Senate’s new target is to approve the bill on third and final reading before the end of the year.

One consolation in last week’s announcement of the Senate’s approval on second reading of the bill was that the amount of exempt bonuses has been increased to P82,000 from P75,000. The ceiling for tax-exempt bonuses (including the 13th-month pay and Christmas bonus) was raised to P82,000 during plenary deliberations as proposed by Sen. Ralph Recto, who argued that this amount was more consistent when considering the effects of inflation. The same figure was given by Internal Revenue Commissioner Kim Henares in one of the hearings when she said that P30,000 in 1994 would be worth around P82,000 today. Republic Act No. 7833, which was enacted in 1994, mandates that the 13th-month pay and other benefits such as productivity incentives and Christmas bonuses not exceeding P30,000 are exempted from tax.

The Angara bill would have been the first adjustment of the ceiling for tax-exempt bonuses in 20 years. What’s sad about all this is that the finance secretary has the power to adjust the ceiling under the tax code—if bureaucrats only had the ordinary workers’ welfare in mind. But that is apparently expecting too much.

Another consolation in last week’s announcement is that the Senate version of the bill also includes a provision requiring the periodic adjustment of the tax exemption ceiling for inflation. As Angara put it: “In order for this injustice not to happen again because we left our system unchanged and outdated, our measure mandates that adjustments be made every three years after the effectivity of this law, taking into account inflation.”

Another amendment to the Senate bill, this one coming from Drilon, makes the law effective even with the finance secretary’s failure to come up with rules and regulations for it.

We don’t know why the executive branch tried hard to block the measure when, as Recto explained earlier, the increase in the ceiling of tax-exempt bonuses should be viewed, not as a revenue loss for the government, but as “income gained by the workingman.” And even if the 13th-month pay is tax-exempt upon receipt, it would be taxable when spent (most goods and services are subject to sales or value-added taxes, after all). So the tax not withheld at source would later be captured in the form of other taxes at the point of sale.

We also cannot understand why legislators failed to exhibit the passion and resolve necessary to pass the bill, as they do in hearings covered live by television. It’s a sad commentary from the public that legislators seem to prioritize hearings that are aired on TV over hearings that do not get much publicity, including the one on tax-exempt bonuses.

The public should now be mindful of this bill and monitor whether or not legislators will continue to act on it. From the senators’ statements, it should be passed by next month.

Earlier, Angara said: “Given that all of our colleagues in the Senate expressed their willingness to be coauthors of the bill, it clearly indicates that we all want our deserving taxpayers to benefit more from the fruits of their labor—a wonderful Christmas present to our hardworking Filipino workers and their families.” That would have been sweet music to the ordinary workers’ ears, if only our legislators were minded to truly serve the people.