Simplified income tax bill revived
By Michelle Remo
Philippine Daily Inquirer
First Posted 20:31:00 10/12/2008
Filed Under: Economy, Business & Finance,State Budget & Taxes
THE OLD PROPOSAL OF SOLVING chronic tax evasion among self-employed individuals through the simplified net income tax scheme (Snits) has been revived in Congress and the Department of Finance wants its immediate enactment into law.
House Bill No. 5257, filed by Rep. Exequiel Javier, limits the expenses that may be deducted from gross revenues earned by professionals and individuals running their own businesses to arrive at their taxable income.
The bill is in response to complaints that salaried individuals, whose taxes are automatically withheld by employers from their salaries, shoulder a much bigger share of the government’s income tax collection from individuals.
The self-employed can afford to pay less by declaring various expenses as “costs of operating the business” and deducting these from their taxable income.
The bill proposes that only seven items will be considered allowable deductions from gross revenues of self-employed individuals:
• Salaries of employees
• Costs of supplies, electricity, fuel, light and water
• Rent of property used in doing business
• Interests on loans used to support the business
• Taxes paid by the business other than income tax
• Depreciation of properties of the business
• Contributions to victims of calamity-stricken areas coursed through the government or accredited relief organizations.
The enumeration of allowable deductions, however, will not apply to self-employed individuals who will choose to pay taxes under the 40-percent optional standard deduction (OSD) scheme.
Under this system, those who do not want to go through the tedious process of listing down all allowable expenses may simply deduct 40 percent from their gross revenues to determine their taxable income. This is already embodied in the recently signed RA 9504, which also exempts minimum wage earners from income tax and raises personal exemptions to a uniform rate of P50,000 a year.
“The adoption of Snits would address tax avoidance practices through over-deduction of business expenses. It would, as a consequence, broaden the tax base and improve tax revenue collection,” the DOF said in a position paper submitted to the Lower House.
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