THE Department of Finance (DOF) opposed the proposal to increase the current P90,000 tax-exempt threshold for bonuses even as lawmakers push to raise the ceiling citing the goal is to restore workers’ purchasing power.
During a hearing by the House Committee on Ways and Means last Monday, Finance Undersecretary Karlo Fermin S. Adriano responded to committee chairman Marikina Rep. Miro Quimbo that the DOF is not in favor, for now, of raising the tax-exempt ceiling for bonuses.
Adriano added that the DOF is proposing to retain the current threshold for bonuses, including the 13th month pay, while studying calls to exempt overtime pay, hazard pay and others from taxes.
At the moment, the 13th-month pay and other benefits, including Christmas bonuses, amounting up to P90,000 are exempted from taxes. Any amount exceeding that figure will be subject to a levy on income based on the employee’s tax bracket.
‘There is recognition that our incomes have already been eroded by inflation. However, we also have to balance all of these proposals with the country’s fiscal sustainability and stability,’ Adriano said.
‘There is always a corresponding cost to these measures, and we have to ensure that our fiscal health remains strong and stable,’ he added.
Some lawmakers have pushed to raise the tax exemption ceiling to P150,000.
The proposed increase was also defended by House of Representatives Deputy Minority Leader Antonio L. Tinio, pointing out the erosion of workers’ purchasing power since the P90,000 threshold was set.
Tinio cited government’s inflation data showing that cumulative inflation had reached 42.4 percent since 2018, when the Tax Reform for Acceleration and Inclusion (Train) law, which exempted bonuses from taxes, was originally passed.
Applying the cumulative inflation rate to the P90,000 threshold would bring the amount to around P128,160, the lawmaker explained, arguing that the bonus exemption should therefore be adjusted to roughly P128,000.
‘It seems logical that we should include this as well,’ Tinio said.
Adriano, however, reiterated the need ‘to balance two things.’
‘On one hand, there is fiscal sustainability and stability, and on the other, there is fiscal relief,’ he said.
To achieve the balance, Adriano said the DOF is pushing for ‘Progress Bill,’ which is expected to generate P191.77 billion in net revenues in the next four years by expanding excise taxes while providing tax relief for the middle class and small businesses.
Those earning no more than P350,000 annually would be exempt from personal income tax, while micro and small businesses would also be exempt from the minimum corporate income tax.
To counterbalance expected revenue losses, the DOF is proposing to expand sin and wealth taxes, while revisiting its earlier plans to tax plastic products and update the motor vehicle road user tax.