TRAIN explained: How new income tax exemptions add up


Posted at Jan 09 2018 09:59 AM | Updated as of Jun 04 2019 06:09 PM

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MANILA – Middle class workers without dependents stand to get the most relief under new income tax rates, which removes exemptions for dependents but raises the cap on non-taxable income across the board, an analyst said Tuesday.

Under the first package of reforms that took effect on Jan. 1, the threshold amount for tax exemption was raised to P250,000 of annual income, from P50,000 under the previous system.

However, the P25,000 exemption per dependent for up to 4 dependents, or a maximum of 100,000 per taxpayer, was removed. Under the previous system, a person with 4 dependents can get as much as P150,000 in exemptions.

“Those who make more than minimum wage and those without additional dependents, or practically, responsibility with the family, are those who will be enjoying more with this simplification,” Abrea Consulting Group president Mon Abrea said.

Asked if the simplified computation was good, Abrea told ANC's Early Edition: “If we are after unburdening the hardworking middle class, yes. If we are after simplification of the tax system, yes.”

Abrea said only minimum wage earners were automatically exempted from paying income taxes under the previous system.

"God knows the old tax system is the real devil," he said.

Most salaried workers will receive higher take-home pay due to lower tax rates starting this year. However, the new law also raised duties on fuel, cars and sugar-sweetened drinks, among others.

The Department of Finance has released a calculator to compute effects of tax reform, including higher commodity prices and the government's planned cash transfers for the poor.

Two persons who earn 25,000 a month will both pay P10,000 in taxes per year under the new system, even if one has 4 dependents while the other has no dependents.

However, the person with no dependents will get the most relief as he was paying P49,500 under the new system. Including exemptions for dependents, the other worker was paying P24,500.

At least 3 more reform packages will be submitted to Congress within the year, Finance Secretary Carlos Dominguez said on Monday.

The DOF projects P786 billion in revenues from tax reform, which will help fund President Rodrigo Duterte's P8-trillion infrastructure program.