Proposed hike in income tax exemption opposed

The Department of Finance (DOF) is opposing a proposal to raise the ceiling on the 13th month pay and other employee benefits for income tax exemption.

In a statement, the DOF said the proposal could erode government revenue. “This is something the government cannot afford given the rising expenditure requirements for social services, infrastructure and other vital public spending,” the agency said.

Several bills seeking increases in the amount of employee benefits covered by income tax exemption have been filed in Congress.

One measure seeks an increase in the ceiling on 13th month pay and other employee benefits to P75,000. At present, as stated in the Tax Code, 13th month pay and other employee benefits worth P30,000 and below are exempted from income tax.

The said proposal, according to the DOF, will result in P61.7 billion in foregone revenue for the government yearly.

Finance Secretary Cesar Purisima said the passage of such proposals would wipe out the revenue gains from the Sin Tax Reform Law.

The additional revenue from the sin tax law was estimated at only P34 billion last year.

“The Philippines is still on deficit spending. The passage of these proposals (will) wipe out the revenue gains from sin taxes that the country worked for 16 years to pass, and jeopardize our social spending commitments, especially for the rehabilitation of calamity-stricken areas and infrastructure,” Purisima said in a statement issued on Thursday.

He said raising the ceiling for income tax exemption would keep the government off track of its goal to limit the annual budget deficit at a level equivalent to 2 percent of the country’s gross domestic product.

A deficit-to-GDP ratio of 2 percent or lower should be maintained to keep the government’s debt within manageable levels, the DOF said.

Purisima said revenue loss for the government would adversely affect a big portion of the population at the end of the day.

“For example, a foregone revenue of P61.7 billion could almost fully fund the expansion of the Pantawid Pamilyang Pilipino Program, which provides direct immediate support to poor households with irregular income,” he said.