Abstract

As a measure to provide economic relief to both public and private

workers due to significant inflation and substantial decrease in purchasing power,
the Republic Act 10653 was signed into law by President Benigno S. Aquino III.
The law more than doubled the tax exemption cap on bonuses and the 13 th
month pay of employees. Although the cap

Background Information
The Republic Act 10653 was signed into law by President Benigno S.
Aquino III on February 12, 2015. The law adjusted the 13th month pay and other
benefits excluded from the computation of gross income for the purpose of
income taxation by increasing the ceiling from P30,000 to P82,000. Also, the law
mandates the President to adjust the threshold for inflation. The inflation
adjustment should be done every three years using the Consumer Price Index as
published by the National Statistics Office.

Effectivity and Implementation

The Republic Act 10653 is effective 15 days after publication of at least
two newspapers of general circulation. Furthermore, it was published on
February 14,2015 in Philippine Star and Manila Bulletin and in March 2, 2015 it
was implemented.
The Secretary of Finance shall promulgate the rules and regulations to
implement the higher tax-exemption cap on the 13 th month pay and other

benefits. Also, the absence of the implementing regulations shall not prevent the
law from taking effect upon its effectivity. The Revenue Regulation 3-2015 was
issued on March 9,2015 by the secretary of finance which clarified that as to the
periods covered, the law shall apply to benefits accrued or paid beginning
January 1 2015.
In order to ensure that the provisions of the new regulations are effectively
applied, it is required that all employers should guarantee that the computation
and application of the tax- exemption cap is correct, and that such should be
clearly stated in the Certificate of Compensation or BIR Form 2316 and issued to
the employees.

Any violation of rules may be ___ with penalties under the

provisions of the Tax Code and the applicable regulations issued by the BIR.

Impact on Government
The implementation of RA 10653, increasing the amount of bonuses from
P30K to P82K is long awaited good news for both government and private
employees most especially for the rank and file belonging to the lower bracket of
the corporate world. However, this good news is not actually good news for
government since it is estimated to cost the government a revenue loss in the
vicinity between 24 to 40 billion pesos as per BIR and NSA. The UP School of
Economics puts it in a much lower estimate to just mere 6 billion pesos. We tend
to rely on the figure estimate given by the UP school of economics for obvious
reason.

This impact on the tax collection efforts of government means not actually
a loss on the part of government but only a delayed process. In fact, this initial
impact can be recovered by government thru a different taxation scheme like the
VAT which government imposes on almost everything people do when they buy
or pay for services. What is more alarming and a real loss to government is graft
and corruption at the BIR or Bureau of Customs and their inability to collect the
right taxes to the right people. Smuggling for example is a glaring example on
how much government is losing. If Customs and BIR can only impose these
customs duties and taxes to the right entities then the mere tax exemption of
82,000 pesos for the low income salaried employees means nothing.

Benefits Covered

Comparison
Under the old section 32(B)(70)(e), the exclusion from the taxable income
of employees of public and private entities shall not exceed thirty thousand pesos
of the gross 13th month pay and other benefits that they received which includes
productivity and Christmas bonus. Provided further that the ceiling of thirty
thousand may be increased through the rules and regulations issued by the
secretary of finance, upon recommendation of the commissioner, after
considering among others the effect of inflation rate at the end of the taxable
year. On the other hand, the new section 32(B)(7)(e) as amended by RA 10653,
the exclusion from the taxable income of employees of public and private entities
shall not exceed eighty two thousand pesos of the gross 13 th month pay and
other benefits that they received which also includes productivity and Christmas
bonus. Provided that every three years after the effectivity of this act, the
president of the Philippines has now the discretion to adjust the amount of the
total exclusion to reflect its present value using the Consumer Price Index, as
published by the National Statistics Office.
RA 10653 enumerates the benefits subject to the eighty two thousand
ceiling which includes 13th month pay, other bonuses, productivity bonus,
discretionary bonus, longevity pay and the excess value of de minimis benefits.
On the other hand, the tax exempt benefits not covered by the eighty two
thousand ceiling are the de minimis benefits conforming to the ceiling set under
RR 5-11 and the 13th month pay and other benefits regardless of the amount
received on account of involuntary separation.

Conclusion
Based on the data gathered, the increased ceiling for the computation of
the exclusion from the gross income of the individual tax payers from 30,000 to
82,000 may cause losses to the government. Taxation is the source of income of
the government; the increase in the ceiling will cause an increase in the take
home pays of the pure compensation income earners but will decrease the
revenues that the government can possibly earn. This RA 10653 will be more of
the benefit for the individual tax payers than the government. The government
can use other taxation schemes to minimize the said forecasted losses.
On the other hand, the increase in the take home income of the taxpayers
will cause an increase in the spending of households. The increase in spending
of the households directly affects the income of the business sector because of
increase in consumption. This increase in the business revenues will lead to
higher tax revenues to the government.