Does Duterte’s Tax Reform Mean More Money in Your Pocket?

On May 3, the tax reform package by the country’s Department of Finance (DOF) has already advanced in the House of Representatives. It passed its first reading and its fate seems to be bright ahead!

Current tax rates

In a nutshell, the Philippines has one of the highest tax rates in Southeast Asia. For one, the corporate tax in the country is 30%, which is applied to all net incomes from the entire tax table sources. Compared to other countries in the region, 30% is extremely steep (refer to the comparison table below). This can be accounted as one of the major factors why foreign investors prefer to do business elsewhere instead of the Philippines.

Country Corporate Tax Personal Income Tax Tax on Goods and Services
Philippines 30% Progressive from 5% to 32% 12%
Malaysia 24% Progressive from 0% to 28% 6%
Singapore 17% Progressive from 0% to 22% 7%
Indonesia 25% Progressive from 5% to 30% 10%
Thailand 20% Progressive from 0% to 35% 7%
Vietnam 20% Progressive from 5% to 35% 10%

Source: aseanup.com

On the other hand, at 32% for the highest income bracket, personal income tax rate is not the highest in the region (which is only next to Vietnam and Thailand at 35%), but it’s still in the top three. Below is a complete overview of the progressive personal income tax rates in the Philippines.

Annual Income Bracket Tax Rate
P0 to P10,000 5%
P10,001 to P30,000 10%
P30,001 to P70,000 15%
P70,001 to P140,000 20%
P140,001 to P250,000 25%
P250,001 to P500,000 30%
P500,001 and above 32%

Source: dof.gov.ph

What’s new?

The Comprehensive Tax Reform Package of the Department of Finance is part of the Dutertenomics. It aims to provide relief to 99% of the tax paying workers in the Philippines by reducing their monthly income taxes (lessening the overall tax burden of the poor and the middle class).

It will redesign the tax system in the country to make it fairer, more efficient, and simpler. At the same time, it’s going to help the government raise the resources that it needs to invest further in the country’s infrastructure and people.

On the other hand, while it brings down the income tax obligation of all working individuals, it will raise the excise of fuel.

Who will benefit from this reform?

This new tax reform is good news for low-income and middle-income earners in the country, which is the majority of the population. The proposed tax reform will be gradually decreasing on the coming years and it will be implemented immediately in the second half of 2017 up until 2019. The tax income on 2020 and onwards are expected to be even lower!

Proposed Tax Schedule for the second half of 2017 until 2019

Annual Income Bracket Tax Rate
P0 to P250,000 0%
P250,001 to P400,000 20% of the excess over ?250,000
P400,001 to P800,000 P30,000 + 25% of the excess over P400,000
P800,001 to P2,000,000 130,000 + 30% of the excess over P800,000
P2,000,001 to P5,000,000 P490,000 + 32% of the excess over P2,000,000
P5,000,001 and above P1,450,000 + 35% of the excess over P5,000,000

Source: dof.gov.ph

Proposed Tax Schedule for 2020 and onwards

Annual Income Bracket Tax Rate
P0 to P250,000 0%
P250,001 to P400,000 15% of the excess over P250,000
P400,001 to P800,000 P22,500 + 20% of the excess over P400,000
P800,000 to P2,000,000 P102,500 + 25% of the excess over P800,000
P2,000,001 to P5,000,000 P402,500 + 30% of the excess over P2,000,000
P5,000,001 and above P1,302,500 + 35% of the excess over P5,000,000

Source: dof.gov.ph

For your information
Bonuses amounting to less than P82,000 are exempted. These bonuses include 13th month pay, Christmas bonus, and other incentives related to productivity.

According to the DOF, 83% of the working-class Filipinos belong to the 0 to P250,000 income bracket. This means that majority of the current taxpayers will be tax free once this tax reform has been implemented.

For those who belong to the income brackets that have corresponding fixed tax rates plus the percentage of the excess, they will still enjoy a lower tax rate compared to the current income tax.

Let’s take for example the P400,001 toP800,000 annual income bracket of the first table. The base tax is only P30,000 for the whole year (12 months) if you’re earning more than P400,000 but not more than P800,000 annually. On top of that, there will be an additional 25% tax which will only be based on the amount minus the P400,000 annual income.

Sample computation

Annual income of P450,000

Base tax P30,000
Excess of the base annual salary (P450,000 – P400,000) P50,000
25% of excess (P50,000 x 25%) P12,500

Tax computation

P30,000 (base tax)

+ P12,500 (25% of the excess)

= P42,500 Total annual tax

Before the tax reform Second half of 2017 to 2019 2020 and onwards
P67,500 annual tax or P5,625 per month
(15% of annual income)
P42,500 annual tax or P3,541.66 per month
(P30,000 + 25% of the excess over ?400,000)
P32,500 annual tax or P2,708.333 per month

(P22,500 + 20% of the excess over P400,000)

Spread that to twelve months and you’ll only be paying P3,541.66 per month for your tax obligations. Meanwhile, the current income tax will take away P5,625 per month or P67,500 per year if your income belongs to that bracket (which is P37,500 per month). You’ll save P25,000 a year which is 37% of your previous annual tax rate.

The tax rate gets better come 2020, the amount of income tax you’ll be paying is only 48% of your current one, bringing up your savings to 52% or P35,000 annually. That’s already a few thousand pesos away from your one month income if it belongs to this salary bracket.

To give you a quick calculation of how much tax you will be exempted from before and after the tax reform without having to do manual calculations, you can use the online tax calculator from Department of Finance.

Higher taxes on fuel but  fare prices will not be affected

It has been made clear that with the implementation of the wage-friendly income tax structure, comes an increased excise on fuel. An estimate of 10% per liter will be excised on fuel. And, when fuel prices increase, what usually happens is that the public transportation prices also skyrocket – not for this case, though.

Part of the tax reform’s initiative is to make sure that this increase in fuel price will not impact the finances of Filipinos, especially the daily commute expenses. To keep the fares at the same level as it is now, the government has three mitigating programs which are the following:

Pantawid Pasada Program

This program aims to keep the fares at the same level by providing public utility vehicle drivers cash cards which will offset the increase in fuel tax.

Jeepney Modernization Program

The government will also improve jeepney engines to increase vehicle mileage and decrease carbon emission. This program will not only be beneficial to the public vehicle drivers, but also to the environment.

Unconditional Cash Transfer

The government will be providing P300 per month for one year to households will low income (will be determined upon implementation of the tax reform), to help them keep up with the temporary and moderate increase in prices.

Who will be greatly affected?

Basically, those people who drive their own private vehicles will feel the burn of the increased excise on fuel prices. However, if we put things into perspective, the majority of the people who own a private vehicle  in the Philippines belong to the taxed income brackets (better paid than the average Filipino). With the implementation of the tax reform, the excise on the fuel prices is but a percentage of the amount that they will save – realistically speaking.

At the end of the day, whatever income bracket you are in, the new tax reform can still spare you a thousand pesos or two. So, it’s still a win for everyone’s finances!

Empowering people with the capability to spend or save more

In general, the tax reform is simply utilitarian in nature – a little compromise for the benefit of the majority. In fact, despite the compromise on the fuel prices, it can still manage to make a difference in the day-to-day finances of every Filipino.

Besides, the point of the tax reform’s agenda in providing a bigger take home pay to 99% of working Filipinos is to increase their spending power. With more cash on hand, finances will be a tad-less hard for Filipinos to keep up with.

To know more about the proposed tax reform, you can read more on Department of Finance’s website.

Tell us what you think of the new tax reform in the comment section below!

About marcpadz

A content creator for iMoney Philippines. Currently based in Malaysia, but creates contents for the people of his motherland.
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