“THE 35-percent personal income tax is relatively high. Dapat ibaba [It should be lowered],” Mon Abrea, Founding Chairman and Chief Tax Advisor of Asian Consulting Group (ACG), said on Friday.
Abrea said the 35-percent rate should be adjusted…“same with [Corporate Recovery and Tax Incentives for Enterprises] CREATE law,” saying that CREATE law lowered the corporate income tax to 25 percent and for small companies to 20 percent. Reducing the personal income tax rate of 35 percent—for those earning P8 million and above—is a way of encouraging voluntary compliance especially of the top taxpayers, Abrea explained.
According to the Department of Finance (DOF), the CREATE law, the “largest” fiscal stimulus for businesses, is seen to benefit micro, small and medium enterprises (MSMEs) through the grant of a corporate income tax reduction in the country from 30 percent to 20 percent while large corporations also enjoy an immediate reduction in the corporate income tax rate from 30 to 25 percent.
“So I guess the highest rate for personal income tax should be between 20 to 25 percent and that is the world standard. That’s not my personal opinion,” Abrea told reporters in a media briefing on Friday in Makati City.
The Finance department said in December 2022 that majority of taxpayers will receive further personal income tax cuts beginning January 1,2023 pursuant to Republic Act 10963 or the Tax Reform for Acceleration and Inclusion Law (TRAIN) law, which, among others, adjusted personal income tax rates, to make the system simpler, fairer, and more efficient.
Individuals with an annual taxable income below P250,000 are still exempted from paying personal income taxes under the adjusted tax rates, DOF noted.
“The revised tax schedule beginning January 1, 2023 reduces personal income taxes for those earning P8,000,000 and below, compared to the initial tax cuts for January 1, 2018 to December 31, 2022,” the Finance department said in a statement in December 2022.
Meanwhile, DOF also noted that to maintain the “progressivity” of the tax system, the tax rate for individuals earning P8,000,000 and above annually will be maintained at 35 percent.
According to a story by the BusinessMirror in March 2023, the Bureau of Internal Revenue (BIR) is banking on higher spending by Filipinos to offset the possible reduction in its collection of personal income tax as a result of the second round of income tax reduction under the TRAIN law.
BIR Commissioner Romeo D. Lumagui Jr. said money collected by the bureau from Filipinos’ consumption would be able to compensate for the reduction in their annual income tax filings.
“Hopefully, it will compensate. Effectively, with higher take-home pay, hopefully they will be spending,” Lumagui told reporters in March. “So, consumption tax.”
Under the TRAIN law, the tax rate for individuals earning between P250,000 and P8 million would be slashed further by 2-percentage points to 5-percentage points depending on their tax brackets. The reductions in personal income tax took effect on January 1.
For example, the personal income tax of individuals earning between P250,000 and P400,000 would now be 15 percent of excess over P250,000 from 20 percent of excess over P250,000 before.
Image credits: ACG