Tax break on 13th month pay
Despite opposition from the Department of Finance, President Aquino recently signed into law Republic Act 10653, which increases to P82,000 the tax exemption of productivity incentives and Christmas bonus of private and public employees.
The adjustment is the first since 1994 when Congress set P30,000 as the maximum amount of the Christmas bonus or 13th month pay that is excluded from the computation of an employee’s gross income for tax purposes.
Going one step further, Congress authorized whoever may be President in the future to adjust, three years after the law takes effect, the P82,000 exemption cap “to its present value using the Consumer Price Index, as published by the National Statistics Office.”
This means that, in 2018, the winner in the 2016 presidential poll can, without need of securing prior legislative approval, increase the exemption to an amount that approximates the purchasing power of P82,000 today.
At the outset, the Bureau of Internal Revenue (BIR) expressed its disagreement to the reduction of the tax bite on this extra compensation aimed at adding more cheer to the Christmas season.
Then and now, the BIR holds the view that the country can ill afford to forego the collection of the P30 billion that the increased exemption represents.
In anticipation of the revenue shortfall, Revenue Commissioner Kim Jacinto-Henares said the BIR would have to revise downward its collection target of P1.72 trillion for this year.
Expenses
In a TV interview, she warned the revenue loss would mean, among others, less money to finance the construction of various infrastructure projects the country sorely needs.
She said Congress would have to create new sources of revenue to make up for the reduction in tax collections resulting from the tax exemption hike and other tax breaks earlier given to low earning employees.
Henares cannot be faulted for being a Scrooge to fixed income earners or people who live from pay check to pay check. Her marching orders from President Aquino are to raise as much money possible to meet the funding requirements of the national budget.
In her zeal to accomplish her mission, however, she seems to have forgotten that the interests of the taxpayers are as important as those of the government, and that taxation should be governed by the people’s ability to pay and their right to enjoy the fruits of their labor.
She should make a paradigm shift in her treatment of the P30-billion revenue shortfall: Look at it as a gain for the taxpayers and not a loss to the government.
Whether paid in full at the onset of the Christmas season, or paid in two tranches in June and December (as is the practice in government offices), the extra cash represents additional purchasing power for products and services that families need during school enrollment period and, what many Filipinos consider, the happiest time of the year.
Circulation
The additional expenditures result in the manufacture of more products or goods and the performance of additional services which, in the process, increase job and earning opportunities for our people.
And when business booms, assuming the BIR does its work honestly and efficiently, the revenue collections should correspondingly go up.
It bears noting that the extra cash in the 13th month pay that is made available to wage earners stay and circulate within the domestic economy.
The alleged P30 billion “loss to the government” is exaggerated because the uncollected revenue reverts to the economy when spent by the taxpayers. That money creates favorable ripple effects as it moves from one pocket to another.
Aside from treating the P30 billion as a gain to the taxpayers, it can be looked at too as money saved from misappropriation or misuse by government officials tasked with handling the people’s money.
It represents money spared from inclusion in the pork barrel funds of congressmen and senators that often find their way in their and their cohorts’ foreign bank accounts.
Although these congressional allocations have been declared illegal by the Supreme Court, the fact remains that they continue to exist in the national budget in various guises and forms.
Principles
In recommending to Congress the enactment of new tax measures to make up for the revenue shortfall, the BIR should make sure that burden is not indirectly passed on to ordinary taxpayers.
It would be unfair for the government to be an Indian giver to the intended beneficiaries of the expanded tax exemption cap: Getting back with the left hand money earlier given with the right hand.
The BIR, and Congress for that matter, should bear in mind that “equitability” remains one of the most important principles of good taxation.
The obligation to pay taxes should be based on ability to pay, meaning, persons or companies with substantial financial resources should contribute more to government and that those who with lesser income should be obliged to comparatively pay less.
As the earlier advertisements of the BIR have pointed out, it is unfortunate that the bulk of the country’s financial requirements are being paid for by low wage earners through automatic deductions from their pay envelopes.
The professionals and other taxpayers who enjoy enormous flexibility in the payment of their taxes are enjoying the fruits of governance at the expense of the less financially fortunate.
In terms of taxation, those who have less ability to pay have to pay more to sustain the lifestyle of their wealthier brethren.
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