Three Important Takeaways from the Tax Reform Bill

December 7th, 2017

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With the new year comes a new tax system! On December 6, 2017, Go Negosyo Radio hosts Sen. Bam Aquino & DJ Cheska San Diego-Bobadilla were joined by the resident tax expert Mon “The Tax Whiz” Abrea for an episode tackling the Tax Reform Bill and its implications for the Filipino people.

To those who haven’t heard of the tax reform bill that was first proposed by the Department of Finance and is now being processed in the legislative branch’s bi-cameral sessions, it is radically changing the current outdated tax system which weighs heavily on the ordinary Filipino.

During the episode, the three addressed the most pertinent questions and issues regarding the bill to clarify and prepare Filipinos for the change. Here are three key takeaways from the episode:

  • Adjusted tax bracketing means around 5M Filipinos with low wages will become tax-free

Many have heard that those earning monthly wages of Php21,000 and below will be tax-free once the bill passes. This is due to the adjusted tax-bracketing system which will also have those earning an annual income of 8 million and up to be taxed at a higher rate of 35%. For comparison, the current system only gives those with an annual income of 132,000 a free pass on income tax. “An additional 23% of Filipinos will benefit from this reform (…) around five million Filipinos”

  • Micro and small entrepreneurs will benefit the most from this bill

            According to Senator Bam, around 40% of the Filipino people are part of the informal economy wherein they don’t pay their taxes. These are mostly the small and micro entrepreneurs we see working hard to earn their daily income. Due to exorbitant penalties and requirements that wear out these entrepreneurs, many choose not to register in formal institutions, hindering them from accessing much needed formal loans and assistance.

By reforming the current tax system wherein business tax can be paid either yearly or quarterly, and penalties & compliance requirements being reduced, this will hopefully encourage many entrepreneurs to register their business.

The Bureau of Internal Revenue is also working tirelessly on putting their system online. This will aid in reducing corruption schemes that prey on the micro and small entrepreneurs through fixers and surprise penalty fees. The system will also save many Filipinos time in terms of regularly having to visit physical bureaus.
The reform also seeks to exempt micro businesses who are still working towards a sustainable source of income in order to help these businesses scale before they begin paying their taxes.

  • Tax on products are still under review

With the tax reform that seeks to lower tax for those who need it most, the government also needs to raise revenue for its projects such as the Build, Build, Build (infrastructure development). With this, many Filipinos are being warned that prices of products such as automobiles, gas and sweetened beverages will be increased. As much as possible however, the government will seek not to tax products that are prejudiced against the common Filipino. Mon shared certain sectors that should be open to being taxed higher such as corporations and even medium sized businesses.

To expand your knowledge on taxes in general, visit The Philippine Tax Whiz and Center for Strategic Reforms Philippines.