The Philippines Issues Income Tax Exemptions
The Philippines’ Bureau of Internal Revenue (BIR) has recently issued regulations that are 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 will 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.
The tax exemption on benefits specifically refers to “exclusions from gross compensation income received by an employee.” Thus, self-employed individuals and income from business do not qualify for the exemption.
In order to ensure proper compliance with the new tax changes, employers will need to properly compute and apply the threshold change in their year-end adjustments for their Certificate of Compensation/Tax Withheld.
The Senate co-author and sponsor of the tax exemption law, Senator Juan Edgardo Angara, has stated that said the signing of the law is a “long overdue tax relief” for hard-working Filipinos. Additionally, Senate President Pro Tempore Ralph Recto, the principal author of the measure, thanked Philippine President Aquino for signing the law, which he said would “provide economic relief to workers both private and public, whose purchasing power has been substantially eroded due to inflation.”
While some analysts believe that the loss in tax revenues will be made up in the additional spending on goods by employees, and the resulting tax on those goods, the BIR has stated that it expects a PHP16.9 billion hit to its tax revenues. As a result, the agency has cut its budgetary target for 2015 down to PHP1.674 trillion.
In other recent BIR news, the agency has further clarified that interest earnings from long-term deposits or investments are exempt from income tax if they have a maturity period of no less than five years. The tax exemption only applies to depositors who are individual citizens or aliens engaged in trade or business within the country.
The types of deposits and investments that are covered by this rule include:
- Time deposits
- Investments in the form of savings
- Common or individual trust funds
- Deposit substitutes
- Investment management accounts
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