With the politically sensitive provisions gone, the House Ways and Means Committee has decided to adopt the Department of Finance’s (DOF) revised bill lowering personal income tax (PIT) and the accompanying offsetting measures.
House Bill (HB) 4774, titled the Tax Reform for Acceleration and Inclusion, no longer carries provisions removing the value-added tax (VAT)-exemption privilege enjoyed by senior citizens and persons with disabilities (PWDs). Lawmakers rejected this proposal, forcing the DOF to revise the bill.
However, the new bill seeks to repeal Section 33-A of the Magna Carta for PWDs to remove the tax incentives given to those caring for and living with a PWD.
To recover foregone revenues from the proposal lowering the PIT, the House panel and the DOF proposed the relaxation of the Bank Secrecy Act; imposition of excise taxes on petroleum and automobiles; and levies on Philippine Charity Sweepstakes Office numbers’ game and lotto winnings.
HB 4774, drafted by the DOF and adopted by House Committee on Ways and Means Chairman Dakila Carlo F. Cua, adjusts the PIT brackets to correct income-bracket creeping. It seeks to reduce the maximum rate to 25 percent over time, except for the highest income earners, to maintain progressivity and allow the shift to a modified gross system to simplify the PIT system.
Cua said the lower chamber will pass the tax-reform measure by June to help the government finance the 2018 national budget.
Under the bill, the PIT shall be computed in accordance with and at the rates established in the two schedules.
For 2018 and 2019, the new tax brackets will be:
■ Those earning not over P250,000 will be exempted from paying tax;
■ Those earning over P250,000 but not over P400,000 would pay a fixed tax of 20 percent of the income in excess of P250,000;
■ Those earning over P400,000 but not over P800,000 would pay a fixed tax of P30,000, with an additional 25 percent for income above P400,000;
■ Those earning over P800,000 but not over P2 million would pay an excess tax of P130,000, with an additional 30 percent for income above P800,000;
■ Those earning over P2 million but not over P5 million would pay a fixed tax of P490,000, with an additional 32 percent for income exceeding P2 million; and
■ Those earning over P5 million would pay a fixed tax of P1,450,500 with an additional 35 percent for the income above P5 million.
For 2020 onward, the proposed tax brackets are:
■ Those earning not over P250,000 will be exempted from paying tax;
■ Those earning over P250,000 but not over P400,000 would pay a fixed tax of 15 percent of the income above P250,000;
■ Those earning over P400,000 but not over P800,000 would pay a fixed tax of P22,500 with an additional 20 percent for the income above P400,000;
■ Those earning over P800,000 but not over P2 million would pay an excess tax of P102,500 with an additional 25 percent for the income above P800,000;
■ Those earning over P2 million but not over P5 million would pay a fixed tax of P402,500 with an additional 30 percent for the income above P2 million; and
■ Those earning over P5 million would pay a fixed tax of P1,302,500, with an additional 35 percent for the income above P5 million.
The bill said after 2020, the taxable income levels in the above schedules shall be adjusted once every five years through rules and regulations issued by the DOF.
The bill said revenue losses from the PIT reform will be compensated by increasing the excise-tax rates on all petroleum products to address negative externalities brought about by congestion and pollution; restructuring and increasing the excise tax on automobiles; expanding the VAT base by limiting exemptions to raw food and other necessities; and reducing the estate and donors tax to 6 percent.
Under the bill, the excise tax on petroleum products will increase every year starting 2017 to 2019.
■ Lubricating oils and greases, including, but not limited to, base stock for lube oils and greases, high-vacuum distillates, aromatic extracts, and other similar preparations, and additives for lubricating oils and greases, whether such additives are petroleum-based or not, per liter and kilogram, respectively, of volume capacity or weight, from P4.50 to P7 in 2017, P9 in 2018 and P10 in 2019;
■ Processed gas, per liter of volume capacity, from P0.05 to P3 in 2017, P5 in 2018 and P6 in 2019;
■ Waxes and petrolatum, per kilogram, from P3.50 to P7 in 2017, P9 in 2018 and P10 in 2019;
■ On denatured alcohol to be used for motive power, per liter of volume capacity, from P0.05 to P3 in 2017, P5 in 2018 and P6 in 2019;
■ Naphtha, regular gasoline and other similar products of distillation, per liter of volume capacity, from P4.35 to P7 in 2017, P9 in 2018 and P10 in 2019;
■ Leaded premium gasoline, per liter of volume capacity, from P5.35 to P7 in 2017, P9 in 2018 and P10 in 2019; unleaded premium gasoline, per liter of volume capacity, from P4.35 to P7 in 2017, P9 in 2018 and P10 in 2019;
■ Aviation turbo jet fuel, per liter of volume capacity, from P3.67 to P7 in 2017, P9 in 2018 and P10 in 2019;
■ Kerosene, per liter of volume capacity, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019;
■ Diesel fuel oil and similar fuel oils having more or less the same generating power, per liter of volume capacity, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019;
■ Liquefied petroleum gas, per liter, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019;
■ Asphalts, per kilogram, from P0.56 to P3 in 2017, P5 in 2018 and P6 in 2019; and
■ Bunker fuel oil, and on similar fuel oils having more or less the same generating power, per liter of volume capacity, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019.
The bill also said the tax rates shall be increased by 4 percent every year thereafter, beginning January 1, 2020, through revenue regulations issued by the secretary of finance.
Cua said 40 percent of the first incremental revenues generated from the petroleum excise tax shall be allocated to fund highly targeted transfer programs and subsidies to public-utility vehicles for one year.
The tax-reform package will entail some P200 billion in foregone revenues but will also generate around P206.8 billion for the government in the first full year of its implementation.
Zero VAT base
Also, the bill said the following sales by VAT-registered persons shall be subject to 0-percent rate:
■ The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon, which may influence or determine the transfer of ownership of the goods exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
■ The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air-transport operations; provided that the goods, supplies, equipment and fuel have been sold and used for international shipping and air-transport operations;
■ Foreign-currency denominated sale;
■ Sales to persons or entities whose exemption under international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate;
■ Sale of gold to the BSP; and
■ Direct exports by a registered export producer of exports products, or the sales of export products to another producer or to an export trader.
Meanwhile, the bill said the following transactions shall be VAT exempt:
- Sale or importation of agricultural and marine food products in their original state, livestock and poultry of or king generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.
Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered in their original state;
2. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets);
3. Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines;
4. Services subject to percentage tax under Title V;
5. Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugarcane into raw sugar;
6. Medical, dental, hospital and veterinary services, except those rendered by professionals;
7. Educational services rendered by private educational institutions, duly accredited by the Department of Education, the Commission on Higher Education, the Technical Education and Skills Development Authorityand those rendered by government
8. educational institutions;
9. Services rendered by individuals pursuant to an employer-employee relationship;
10. Services rendered by regional or area headquarters established in the Philippines by multinational corporations that act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines;
11. Transactions that are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree 529;
12. Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce;
13. Export sales by persons who are not VAT-registered;
14. Sale of real properties not primarily held for sale to customers nor held for lease in the ordinary course of trade or business
15. Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin, which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;
16. Transport of passengers by international carriers;
17. Services of bank, non-bank financial intermediaries performing quasi-banking functions and other nonbank financial intermediaries;
18. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of P3 million (from P1.5 million); and
19. Sale of power or fuel generated through renewable sources of energy, such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.
The bill also said there shall be levied, assessed and collected an ad valorem tax on automobiles based on the manufacturer’s or importer’s selling price, net of excise and VAT.
■ Under the measure, if the net manufacturer’s price/importer’s selling price is P600,000, the excise tax will be 4 percent;
■ If the net manufacturer’s price/importer’s selling price is P600,000 to P1.1 million, the excise tax will be P24,000 plus 40 percent of the value in excess of P600,000;
■ If the net manufacturer’s price/importer’s selling price is P1.1 million to P2.1 million, the excise will be P224,000 plus 100 percent of the value in excess of P1.1 million; and
■ If the net manufacturer’s price/importer’s selling price is P2.1 million, the excise will be P1.22 million, plus 200 percent of the value in excess of P2.1 million.
On the relaxation of the Bank Secrecy Act, the bill authorizes the Bureau of Internal Revenue (BIR) commissioner to inquire and receive information on bank-deposit accounts and other related data held by financial institutions.
Also, under the bill, a final tax rate of 20 percent will be imposed on all PCSO and lotto winnings.
The bill added that the tax for each calendar year shall be 6 percent and shall be computed on the basis of the total net gifts made during the calendar year, provided that annual net gifts not exceeding P100,000 shall be exempt.
Meanwhile, Cua said to properly determine the correct taxes to be paid on the part of the taxpayer and the correct taxes to be collected on the part of the BIR, it has been mandated that all establishments shall issue an electronic receipt or invoice, as the case maybe, which shall be directly generated and transmitted to the BIR upon sale.
Also, Cua said as regards putting up a fuel marking and monitoring system, the intended results are increased revenue from fuel taxes and high-quality petroleum sold in the market.
“This step will certainly plug the leakage of duties and taxes due on this commodity and protect both the consumers and the environment,” Cua said.