DOF opposes plan to raise 13th month pay tax exemption cap

DEFICIT SPENDING. The Philippines is hard-pressed to shore up tax collections to trim its budget deficit. AFP Photo

MANILA, Philippines – Which is more important: tax relief for employees or social services for the poor?

This is what Congress needs to determine when it deliberates on pending bills seeking to raise the tax exemption cap on the 13th month pay, Christmas bonus and other benefits, according to the Department of Finance (DOF).

Without countervailing revenue measures, the DOF said the bills, if passed, will prevent the government from raising tax collections that are vital in funding spending for education and health care services.

Without any new revenue measure, it said higher tax exemptions will erode gains from the Sin Tax Law, which the government worked so hard for.

“The Philippines is still on deficit spending. The passage of these proposals will derail our deficit spending program of 2% of GDP in 2016, in the process wipe out the revenue gains from sin taxes that the country worked for 16 years to pass, and jeopardize our social spending commitments, especially for the rehabilitation for calamity-stricken areas and infrastructure," Finance Secretary Cesar Purisima said.

Senate President Franklin Drilon earlier announced that congressional leaders agreed to give "urgent legislative attention" to bills raising the cap on the 13th month pay and other bonuses to P75,000 from P30,000. (READ: Congress to raise 13th month pay tax exemption cap)

Current laws exempt these benefits from income taxes, but only up to P30,000. Any amount higher is considered part of an employee's gross income and is subject to tax.

Purisima said raising the cap will result in foregone revenues of up to P61.7 billion annually. This amount is nearly enough to fully fund the expansion of the conditional cash transfer program for the poor.

He said in the end, it will be taxpayers themselves that will be "adversely affected" when this plan pushes through.

"If the legislative proposals are passed, and additional revenue measures would take another decade to pass, then the country is in danger of going back into the vicious cycle of fiscal mismanagement. Historically, countervailing revenue measures have been much harder to pass in Congress since increasing taxes is not popular. But the DOF was not made to be popular; it was made to be responsible for the country's economic health," he added.

One of the bills was authored by Senate President Pro-Tempore Ralph Recto. In his bill, Recto emphasized that the law that set the P30,000 cap was passed 20 years ago. "Things have greatly changed."

He said the law must be amended to take into consideration the growth in salaries in the country, as well as inflation.

But Purisima said taxpayers have already benefited from tax deductions faster than inflation since 1994.

"The government has not been remiss in its duty to look after the plight of the taxpaying salaried workers who, incidentally, comprise the bulk or 82% of the total internal revenue collection from individual income taxes in 2012. They have already been granted generous tax subsidies even with the continuous deficit that the government had experienced before," he said.

For instance, he said, the tax exemption of a taxpayer whose status is single has grown 456% from P9,000 in 1994 to P50,000 to 2008 till present.

Purisima concluded, "Ultimately, our stance is beneficial to our taxpayers since a fiscally capable and responsible government will be more equipped to carry out economic reforms that spur inclusive development." – Rappler.com