Tax reform version in Senate up for approval

THE CHAIRPERSON of the Senate ways and means committee endorsed to the plenary on Wednesday, Sept. 20, Senate Bill No. 1592 — or what he has proposed to be the Senate’s version of the bill passed by the House of Representatives last June on the government’s tax reform package, a key component of President Rodrigo R. Duterte’s economic program.

In his speech Wednesday afternoon endorsing the bill, committee chairman Senator Juan Edgardo M. Angara itemized the following highlights of the bill which accorded in part with House Bill No. 5636 but also expanded on certain provisions of the House measure.

The bill exempts the first P150,000 annual taxable income and raises to P250,000 annually exemptions for taxpayers with four children. The bill also retains the P82,000 tax exemption for 13^th month pay and other bonuses and the maximum P100,000 additional exemption for up to four dependents.

A media briefer provided by Mr. Angara’s office further explains that, “Based on BIR data, 81% or 6.1 million of the 7.5 million income taxpayers (both wage earners and self-employed and professionals) will be exempt from paying taxes — triple the current 2 million exempt minimum wage earners.”

The tax exemption of P150,000 also applies to self-employed and entrepreneurs, Mr. Angara said. The bill also “introduces a flat 8-percent tax on annual gross income for the self-employed and professionals,” including traders, sari-sari store and canteen operators, market vendors, hardware-store owners, tricycle drivers and fishball vendors.

“SEPs (self-employed and professionals) are (thus) given the option of either the flat 8-percent tax or the schedule of new income tax rates we have outlined for compensation earners. They can basically choose the tax regime more favorable to them. This acknowledges that different entrepreneurs face different realities in different industries. And hopefully, incentivizes them to pay their taxes correctly,” Mr. Angara said.

VAT EXEMPTIONS
“The Senate version also raises the VAT (value-added tax)-exempt threshold on the sale or lease of goods and services — from P1.9 million to P3 million — exempting small business with total annual sales of P3 million and below not only from paying VAT,but also from filing the monthly VAT return and quarterly percentage tax returns,” Mr. Angara said in his speech. “This will provide relief to many small business owners.”

Mr. Angara further noted that the bill “retained important exemptions related to food production, health care, and socialized housing,” as well as exemptions for the BPO industry, cooperatives, PWDs (persons with disabilities), and senior citizens.

“When it comes to the auto excise tax, the Senate by and large adopts the 5 tiers proposed by the House. The general principle prevails that the most expensive cars will be levied the highest rate, while the cheapest cars will only receive marginal increases. This is to ensure affordable choices are still available for the growing middle class of the country,” Mr. Angara also said in his speech.

The Senate bill further proposed to exempt hybrid and electric cars from the tax, and to increase the excise tax on coal, which has remained the same for 3 decades, the senator noted.

On the contentious point of sugar-sweetened beverages (SSB), “(t)he Senate proposes a two-phased approach from the P10 and P20 structure proposed by HB 5636,” Mr. Angara said.

“First will be a tax worth P5 per liter for beverages with caloric sweeteners, P3 for those with non-caloric sweeteners, and P10 for those that use High Fructose Corn Syrup (HFCS). This shall be in place for the first two years of the implementation of the tax reform package to allow the Food and Drug Administration (FDA) to build its capacity to administer a tax based on the actual sugar content of the drink.”

“By that time, the SSB tax will be P0.05 per gram of sugar per beverage — which is a tax regime that hopefully incentivizes manufacturers to produce and consumers to drink less sugary drinks,” he added.

Mr. Angara also cited tax exemptions on milk and on coffee, including its “3-in-1” variety.

With regards to the estate tax, the bill proposes to replace the “schedular regime…(in the) National Internal Revenue Code.”

“The old schedule of rates will now give way to a flat 6-percent tax on the value of the net estate,” Mr. Angara said.

The bill also pegs the following tax rates for the following estates in their respective value: P200,000 to not over P500,000, P0 + 5% of the excess of P200,000; P500,000 to not over P2,000,000, P15,000 + 8% of the excess of P500,000; P2,000,000 to not over P5,000,000, P135,000 + 11% of the excess of P2,000,000; P5,000,000 to not over P10,000,000, P456,000 + 15% of the excess of P5,000,000; and P10,000,000 and above, P1,215,000 + 20% of the excess of P10,000,000. Estates valued at none over P200,000 are tax exempt.

“To further promote a more efficient transfer tax regime, the Senate similarly set the donor’s tax at a flat 6 percent to be at par with other transfer taxes, like the estate tax and the capital gains tax on real property,” Mr. Angara also said.

He also noted, on the other hand, the inclusion of other taxes that he said form part of the tax reform packages of the Department of Finance (DoF), including the increase in tax on interests of foreign currency deposits, dividend income, and cosmetic procedures, and in the capital gains tax on stocks not traded in the stock exchange.

Mr. Angara said that almost P134 billion in additional revenues may be estimated according to the proposed reforms in the bill.