DoF backs income tax exemption for workers
By Lawrence Agcaoili
source: http://www.manilastandardtoday.com/?...s04_jan07_2006


Finance Secretary Margarito Teves yesterday urged Congress to pass a law that would exempt minimum wage earners from paying taxes on their annual income.

Teves said the Bureau of Internal Revenue has issued Revenue Regulation 1-2006 directing employers not to withhold tax from 365,660 private sector workers earning less than P5,000 a month and 51,872 government workers with salary grades 1 to 3 starting Jan. 1, 2006.

Teves explained that the BIR collects about P600 million from minimum wage earners a year, less than 1 percent of the total compensation income collected by the agency.

The finance chief said the exemption of minimum wage earners from income tax is one of the administrative measures being implemented by the government to cushion the impact of Republic Act 9337 or the Expanded Value Added Tax Act of 2005.

“We hope that this immediate financial relief from the withholding tax will help our minimum wage earners cope with the possible inflationary effects due to the new expanded VAT,” Teves stressed.

The new regulation revised RR 2-1998, which allowed employers to either withhold taxes from take home pay but exempt minimum wage earners from filing their income tax return (ITR), or not to withhold tax on the condition that the employee files his or her ITR and pay the corresponding tax due.

However, he was quick to clarify that minimum wage earners whose take home pay would no longer be withheld would have to pay their ITRs and pay the corresponding taxes due on or before April 15 of the following taxable year.

According to Teves, Congress still has to pass a law that would amend the National Internal Revenue Code of 1997 to permanently exempt minimum wage earners from income taxes.

“To give permanence to that benefit, we are hoping that our colleagues in Congress will file and approve a bill to permanently exempt the minimum wage earners from paying income tax,” he said.

According to him, both the Senate and the Lower House have the entire 2006 to deliberate and pass a bill that would permanently exempt minimum wage earners from paying income taxes.

Under the current income tax regime, an individual earning below P10,000 annually has to set aside at least 5 percent of total income for taxes while anyone receiving more than P500,000 net with allowable personal exemptions and mandatory social security payments has to pay as high as 32 percent worth of taxes.

On the part of the employer, the finance chief explained that employers who would no longer withhold income tax from minimum wage earners would continue to be allowed to deduct the compensation income from the gross incomes of their employees.