The Philippines to Reduce Corporate and Personal Income Tax Rates
The Philippines’ government is set to approve a bill that will reduce the country’s corporate and personal income tax rates. Once implemented, the lowered rates are expected to be a boon for low and middle-income earners.
Under the Tax Reform for Inclusive Growth bill (House Bill No. 4829), the country’s corporate income tax (CIT) will be reduced from its current level of 30 percent to 25 percent. In addition, personal income tax (PIT) brackets will be adjusted in order to account for inflation.
After three years, the bill will also simplify the tax system by reducing the number of PIT brackets. Under this new system, income would be taxed at the following rates:
- The first PHP180,000 (~US$3,844) of an individual’s annual income will be exempt from tax
- Income of PHP180,000 to PHP500,000 will be taxed at nine percent
- Income of PHP500,000 to PHP10m will be taxed at 17 percent
- Income over PHP10m will be taxed at 30 percent
At 32 percent, the Philippines currently has one of the highest PIT rates in the ASEAN region. Only Vietnam and Thailand have higher rates, both at 35 percent.
Many within the Philippine government had been pushing for a PIT rate reduction for some time. In July, the Chairman of the Philippines’ Senate Ways and Means Committee, Sonny Angara, called upon the country’s president, Benigno Aquino III, to lower the rates on personal income tax (PIT).
In a public statement, Mr. Angara was quoted as saying “We need to think ahead and be competitive in the region but, more importantly, we must give the Filipino people a break…the Department of Finance has already expressed its openness to review and amend the tax rates and brackets, and we welcome this progress.”
In addition to the CIT and PIT rate reductions, the Philippines has been making great strides in improving its business environment through a number of other measures. For example, in March of this year, the Philippines’ Bureau of Internal Revenue (BIR) issued regulations that were intended to implement an increased individual income tax exemption cap for 13th month pay and other benefits to PHP82,000 (US$1,827), up from its previous level of PHP30,000. These new regulations apply to workers in both the public and private sectors and are retroactively applicable from January 1, 2015. It is estimated that over half a million employees will benefit from the tax changes.
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