First 250K Income of Compensation Earners Exempted from Tax under TRAIN

The first P250,000 in taxable income of compensation earners will be exempted from the personal income tax (PIT) under the proposed Tax Reform for Acceleration and Inclusion Act (TRAIN), with families receiving a combined monthly income of between P13,000 and P40,000 increasing their take-home pay between P1,100 and 3,500 per month –or P14,000 to P42,000 per year–according to the Department of Finance (DOF).

DOF computations show that even with the slightly higher expenses that taxpayers would incur under the TRAIN’s revenue-enhancing provisions, the increases in their take home pay would more than offset these additional costs.

These revenue-enhancing provisions include expanding the value-added tax (VAT) base, and adjusting the tax for fuel and automobiles and imposing a tax on sugar-sweetened beverages, among other measures.

“The income tax exemption for the first P250,000 that every compensation earner makes annually is the gift of President Duterte to the Filipino people,” Finance Secretary Carlos Dominguez III said. “This means that those earning around P20,000 and below per month will pay zero.”

Dominguez said that under the new Personal Income Tax (PIT) rates as proposed in the TRAIN bill, those earning P250,000 and below will pay zero tax while the next tax brackets were adjusted to make the system more progressive. Only the ultra-rich or those earning P5 million and above pays the marginal tax rate of 35 percent.

As an example, two call center agents earning a monthly income of P21,000 each with four kids or dependents will get a PIT savings of P3,984 a month. Such tax savings would more than offset their additional expenses totaling P982 a month under TRAIN.

Based on data from the 2015 Family Income and Expenditures Survey (FIES), the DOF computed the additional monthly costs for them under TRAIN as follows: P288 for the value-added tax, P201for the fuel excise tax adjustment, an inflationary effect of P113, the impact of the SSB tax at P190 and an added P190 if they are paying monthly amortization for an entry-level mass market sedan.

For a sole breadwinner in one family getting P13,000 a month with one dependent, he or she will be exempted from paying the PIT, which means an increase in take-home pay of P8,940 a year or P745 a month. Based on the FIES, this type of household will incur additional expenses of P211 a month, but will be qualified to receive a targeted transfer of P200 a month under the TRAIN for a period of four years. Together with the PIT savings, this means that this household will be better off.

If the breadwinner with two dependents receives a monthly salary of P21,000, the PIT reform means an additional take-home pay ofP22,668 per year or P1,889 a month. The tax savings will more than offset the rise in household expenses of P398 a month.

A family with two working members earning a combined P37,000 a month is estimated to get a tax break of P47,207. This means an additional take home pay for them of P4,627 a month to help offset the additional household costs computed at P693.

If the family income with two working members amounts to P52,000, the net tax savings would be P67,881 under TRAIN because the PIT would generate savings of P6,800 a month. Estimated additional household costs arising from the TRAIN’s revenue-enhancing provisions were computed at P1,143 per month.

Meanwhile, a family with three working members earning a combined P76,000 a month would gain back P119,640, or tax savings of P9,970 a month to enable them to cope with additional household costs estimated at P2,227 per month.

Tax reform, Dominguez said, is an indispensable component of the President’s broad economic strategy dubbed “DuterteNomics,” which aims to sustain a high growth rate of seven percent over the medium term and bring down the poverty incidence rate to 14 percent by 2022.

The proposed TRAIN, which was passed by the House of Representatives as House Bill No. 5636, will also end the country’s complex tax system that has become vulnerable to evasion and leakages by transforming it into a “simple, just and efficient” structure, he noted.

HB 5636 is a consolidation of the original tax reform bill—HB 4774—filed by Quirino Rep. Dakila Carlo Cua, and 54 other tax-related measures. (DOF)