The taxman cometh soon

Two weeks from now, majority of Filipinos would undergo two rites of sacrifice: the payment of personal income tax and observance of the Holy Week.

The deadline for the filing of personal income tax returns (ITR) is on April 15, Holy Monday. On Maundy Thursday and Good Friday, most parts of the country would commemorate the culminating days of the Lenten season.

For those who are less passionate about their religious beliefs, the Holy Week break is an opportunity to recharge their batteries by going out of town (and braving the traffic hassle) or simply staying at home.

Since fewer people and motor vehicles would be on the road, public works and utilities companies are expected to undertake repair and maintenance work during this period.

Thanks to a law enacted in 2017, the Bureau of Internal Revenue (BIR) forms that individual taxpayers are obliged to file depending on the source of their income—Form 1700 (for purely compensation income), Form 1701 (for self employed, estates and trusts) and Form 1701A (for purely business or profession)—now consist of just two pages each.

It’s a welcome relief from past ITR forms that consisted of 12 pages and had entries that sometimes required consultation with a tax expert or an accountant to make sure the right answers are given.

This time, the forms have lesser entries and are easier to accomplish. The loss in professional fees is the taxpayers’ gain.

Incidentally, unlike the earlier forms, the new version does not contain an income tax table, or a breakdown of the income ranges and their corresponding tax rates, that can guide the taxpayer in computing the tax due on his or her reported income.

That information is essential because the Tax Reform for Acceleration and Inclusion (Train) Law has, among others, changed the income brackets in the computation of the income tax rates.

The new income tax table has two periods of coverage, i.e., from 2018 to 2022 and from 2023 onwards.

Under the new income tax table, those receiving a monthly salary of P20,833 and below (but not over P250,000 annually) are exempt from personal income tax from now until 2023 onwards.

The starting point of the tax table is a monthly salary of P20,834 to P33,333 (over P250,000 but not over P400,000 annually). The tax due on this income from 2018 to 2022 is 20 percent of the excess over P250,000, and the rate is reduced to 15 percent starting 2023.

Consistent with sound tax practices, the income tax rates progressively increase as the monthly salary and total annual income rise. High earning taxpayers are obliged to share more in funding the financial expenses of the government.

Rounding up the tax table is a monthly salary of P666,667 and above (over P8 million annually) which would trigger a tax of P2,410,000 plus 35 percent of the excess over P8 million.

Starting 2023, the tax due on this income bracket shall be P2,202,500 plus 35 percent of the excess over P8 million.

The details of the income tax brackets can be downloaded from the BIR website.

Noticeably, as the deadline for the filing of ITRs nears, hardly anything has been heard from the BIR. In the past, weeks before April 15, the BIR was all over the media reminding taxpayers about their tax obligation and the benefits of early filing of ITRs.

The importance of a tax information campaign cannot be ignored. The collections from individual taxpayers constitute a significant chunk of the 80 percent in revenues collected by the BIR to meet the government’s financial requirements.

There is still time to make the taxpayers aware of their obligation to contribute their share in national governance. Aside from using the traditional media for this purpose, the BIR can avail of social media which has proven its capability to reach its target audience quickly and at a reasonable cost.