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The BIR has finally issued Revenue Regulations No. 10-2008 (September 24, 2008) implementing the provisions of Republic Act (RA) No. 9504 relative to the income tax exemption of minimum wage earners and increase in the amount of personal and additional exemption allowances.

RR 10-08 does not provide for any retroactive effect, thus, the tax relief under RA 9504 shall be enjoyed starting only on July 06, 2008 which is the date of effectivity of the law.

1. Scope of income tax exemption of MWEs. The income tax exemption of minimum wage earners covers the statutory minimum wage, holiday pay, overtime pay, nigh-shift differential pay and hazard pay. However, if a MWE earns additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income, he/she shall no longer enjoy the privilege of being a MWE, and therefore, his/her entire earnings will be subject to income tax and consequently, from withholding tax.

2. Pro-rating of personal & additional exemption allowances - For CY 2008, the applicable personal and additional exemptions shall be prorated, as follows:

For the period July 06 to December 31, 2008, a transitory withholding tax table shall be applied using the pro-rated personal and additional exemption allowances covering the period July 06 to December 31, 2008. Employers are required to undertake final year adjustments consolidating their employees’ compensation for 2008 taking into consideration the transitory exemption allowances.

2. Compliance requirements under RR 10-08. The regulation imposes new and additional compliance requirements which should be complied with to ensure that the employees receive the full benefits of the law, as follows:

1. Submission of list of MWEs receiving hazard pay – This should be attached to BIR Form 1601C for return periods March, June, September and December.

2. Submission of BIR Form 2305 for updating of exemption status – For Taxable Year 2008, employees with change in status and number of qualified dependent children shall accomplish BIR Form 2305, and submit the same together with the required documents/evidence of exemption to their employers not later than October 31, 2008. The original and duplicate copies of BIR Form 2305 together with the required attachments should be submitted to the BIR by the employer on or before November 28, 2008.

For those with no change of status and number of qualified dependents, the employer should be responsible for reflecting the new exemption allowances of their employees in their records.

Full text of RR 10-2008 and its annexes can be downloaded at http://www.bir.gov.ph/

Republic Act No. 9504 exempts minimum wage earners in the private sector and their counterparts in the public sector (casual employees) from paying income tax.

Personal exemptions up

The law increased the amount of personal exemption from P25,000 to P50,000 for all taxpayers regardless of status (single, married or head of the family), and the additional deduction for qualified dependents from P8,000 to P25,000.

Thus, a family of six, with two working spouses and four dependent children, will have a total of P200,000 in personal exemptions (from the current P96,000).

In case only one of the spouses is earning, he or she shall be allowed the standard personal exemption of P50,000.

The law defines a “dependent” as a “legitimate, illegitimate or legally adopted child” living with the taxpayer and not more than 21 years old, unmarried and not gainfully employed.

These provisions eliminated the old tax bracketing system under the 1997 National Revenue Code, as amended, which had specified tax exemption of P20,000, P25,000 and P32,000 for single, head of the family and married, respectively.

PERSONAL EXEMPTIONS

………..Before (in pesos)…. Now (in pesos)

Single ………….20,000 ………50,000

Head of Family.. 25,000……… 50,000

Married …………32,000……… 50,000

Each Qualified Dependent

(Not exceeding 4) 8,000…….. 25,000

Family of 6 (Two working spouses,

4 dependent children) 96,000… 200,000

Read more…

When newspapers report about the efforts of Congress to pass a law intending to lower the taxes that are being paid by individuals, I must admit that I was skeptical on the possibility of this happening in the next couple of months. After all, bills seeking to reduce the tax burden on these taxpayers have long been filed, deliberated and studied in previous sessions of Congress, left unapproved when the last sessions ended, and then refiled when the next Congress opens it first regular session.

When I heard that the House of Representatives had already approved its version and transmitted the same to Congress, my hopes were raised, but I was still not that enthusiastic. I was expecting that it would take a few more months before the Senate, too, can approve its own version. Hence, it was a pleasant surprise to read a few days later that Senate had approved its version. What was doubly astonishing to read, immediately thereafter, that the House, in what I believe is an unprecedented move, recalled the version it earlier approved and adopted instead the Senate version. ……More