JOHN REY D.

ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

AMENDING THE NATIONAL INTERNAL REVENUE CODE OF 1997 (Republic Act

No. 8424)

INTRODUCTION

Regardless of ideology or form of economy, governments around the world share

one thing in common: the power of taxation. Whoever is in power has the right to tax and

modern governments have found ways to tax just about everything: inheritance,

amusement, consumption, and even "sin." But the most direct and arguably largest levy

that workers face is the income tax.

According to a 10 year study by the National Tax Research Council (NTRC), the

income tax constitutes the largest share of the national government's tax revenue. From

2001 to 2010, income taxes consistently comprised not less than 43 percent of the total

taxes collected by the government.

Despite the significance of income tax to the national government's tax revenue,

it's been nearly 20 years since reform has taken place. The levy's current schedule was

established through the Tax Reform Act of 1997 (R.A. 8424) which amended the National

Internal Revenue Code.

JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

REPUBLIC ACT NO. 8424

Republic Act No. 8424 or The National Internal Revenue Code is the law

establishing the system of national taxation in the Philippines. The most recent extensive

revision of the Code occurred in 1997, although the Code was amended in 2005 to

expand the coverage and rates of value-added tax.

The taxes imposed by the Code include a graduated income tax on all income

earned by natural and juridical persons within the Philippines, a capital gains tax, excise

tax on certain products, a donor's tax, an estate tax, and a value-added tax on the sale of

most goods and services in the Philippines.

Real property taxes are considered as local, rather than national taxes, and are

covered instead under the Local Government Code. Tariffs and duties are covered under

the Tariff and Customs Code.

THE ISSUE

Public uproar over the pork barrel scam combined with a more aggressive tax

collection campaign by the BIR in recent months has yielded some fairly strong

sentiments about the state of taxation in the country. At one point, social media flooded

with ideas of staging a tax boycott, or calls for voting rights to be given only to taxpayers.

A casual analysis of tax policies in the ASEAN suggests that the Philippines has

the second highest average tax rate (after Vietnam and Thailand). On the other hand,

Singapore has the lowest marginal tax rate at both ends of its tax bracket, at 20% for the
JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

wealthiest and 2% for the lowest qualifying income tax payers. (Compare this with 32%

and 5% for the Philippines.) Considering the value-added taxes in ASEAN, the Philippines

comes on top of the most taxed in the region.

Virola et al (2013) provide a handy description based on their statistical analysis

of the distribution of incomes in the country. The Philippine Middle Class group, one’s

annual gross income should range from about P64,317.00 to P787,572.00. That’s roughly

P5,359.75 to P65,631.00 in income a month. The study indicates that there are 4.66

million families (roughly 25% of the total population) in the middle class. (Compare this

with roughly 14 million families (or 75% of the population) belonging to the lower class, of

which over 4 million families fall below the poverty line.)

Filipino Families Disaggregated by Income Class

0.1 7.9
25.2
12.6

Food Poor ( 1.55m families)

Income Poor Only (2.5m families)
Lower Class (14m families)
Middle Class (4.7m families)
Upper Class (21.7k families)

74.3

The inherent inequity in the tax system is brought about by the fact that the top

bracket of P500,000 has remained unchanged since 1986.

JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

Since that time inflation has risen resulting in “bracket creep,” as inflation has

pushed up nominal wages and salaries into higher tax brackets causing increases in

taxable income but with no increase in purchasing power. 


Effectively, the government has been unjustly relying on inflation to collect more

taxes from salaried workers, who bear the bulk of the tax burden among individual

taxpayers, rather than through efficient tax administration.


PROPOSED TAX REFORMS

The Philippine economy of 2015 is certainly different than that of 1997. And yet,

income tax remains virtually the same. R.A. 8424 provided for marginal changes, but such

only concerned individuals in the highest incoming bracket, those who earn more than

P500,000 a month. The law reduced their marginal rate from 34 percent in 1997 to 32

percent in 2000.

However, lawmakers have filed several bills seeking to reform taxation:

 House Bill 4278 – Rep. Angelina Tan, M.D.

To fully benefit from the ASEAN Integration in 2015, Tan seeks to reduce the

income tax rate for individuals from 32% to 15%.

 House Bill 4372 – Rep. Rodrigo Abellanosa

Abellanosa seeks to modify further Section 24 (A) (2) of the National Internal

Revenue Code of 1997, as amended, to lower income tax rates at unchanged

salary levels.
JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

 He proposed to lower the tax rates from 32% to only 15% for those earning

P20,000 to P70,000 starting Jan. 1, 2015, then 13% beginning Jan. 1, 2016, and

10% starting on Jan. 1, 2017.

 House Bill 4099 – Rep. Magtanggol Gunigundo

Gunigundo proposes to lower individual and corporate income tax rates to 15%

from the current 32% and 30%, respectively. He’s expecting this to result to a

reduction on the number of Filipinos not paying taxes, as lower taxes mean

higher levels of compliance.

 House Bill 4829 – Rep. Romero Quimbo

This bill proposes a flat rate of 25% income tax and a 5% minimum income tax

rate for self-employed individuals and professionals, a reduction in the corporate

income tax rate from 35% to 25%, and an increase in the minimum corporate

income tax rate from 2% to 5%. Additionally, it also seeks a 5% income tax on

individuals earning below P20,000 and a 35% income tax for those making over

P500,000, but not over P1 million.

 House Bill 4849 – Rep. Arthur C. Yap

Under this bill, minimum wage workers will continue to be exempt from income

tax. It seeks to revise Section 24 (A) (1) of Republic Act No. 8424 (National

Internal Revenue Code of 1997), as amended by Republic Act No. 9504 to lower

the taxes on the low-income earners, allowing them to have a higher net income,

thereby increasing their purchasing power.

JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

 Senate Bill 716 – Senate President Pro Tempore Ralph Recto

This bill proposes a new schedule that would impose no taxes on net income

below P20,000, a 10% tax for a net taxable income below P60,000, 15% for

P60,000-P140,000, 20% for P140,000-P280,000, 25% for P280,000-P500,000,

and 30% for P500,000-P1,000,000.

It also proposes to index the net taxable income levels and nominal tax rates

automatically to inflation every six years, without the need for legislative action.

 Senate Bill 1942 – Senator Paolo Benigno Aquino IV

According to this bill, tax rates should be adjusted every six years “to its present

value using the Consumer Price Index, as published by the NSO”. Those earning

below P60,000 a year are exempted from tax.

A 15% tax will be imposed for those who have earned over P60,000 up to

P140,000 a year, 20% for P140,000-P280,000, 25% for P280,000-P500,000, 30%

for P500,000-P1 million, 32% for P1 million-P12 million, and 35% for those earning

over 12 million.

 Senate Bill 2149 – Senator Juan Edgardo Angara

The bill seeks to reduce the country’s individual income tax rate from the current

32% to 25% by 2017.

JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

The tax rate for those earning between P20,000-P70,000 will be lowered to 10%

from 15%, 15% for P70,000-P200,000, 20% for P200,000-P500,000, 22% for

500,000-P1 million, and 25% for those earning over P1 million.

These tax reforms strive to increase the spending power of the Filipino as well as

to make their lives better.

Hurdles in Tax Reforms

Marikina 2nd District Representative Romero Quimbo, stated two hurdles in tax

reforms: lack of data and lack of time.

He stated that the Department of Finance (DOF) and the Bureau of Internal

Revenue (BIR) have inconsistent data on the losses the government would incur should

income tax reduction be enacted into law. “They have been guessing as far as income

tax is concerned.”

He added: "Up to today we are asking what their inputs are for the different

proposals whether it is adjusting to inflation, reducing corporate income tax from 30 to

25% or having a graduated reduction, they have not submitted anything on record on

what the impact is and the manner by which they were able to get that amount or that

figure." This inability of the DOF inhibits the President from being "confident" about the

proposal.
JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

CONCLUSION

Reforms in public finance cannot just focus on the spending side (e.g. shutting

down PDAF, promoting bottoms up budgeting, and improving transparency and

participatory governance reforms in budgeting). Addressing revenue side issues will go a

long way in winning back the hearts and minds of taxpayers. The aging tax code should

be amended not only on focusing on the income tax but as a whole. Tax reform should

be done holistically and not gradually. Our legislators should make a reform on the entire

package of the National Internal Revenue Code in accordance to the present state of our

economy. The National Tax Research Center (NTRC) should be empowered by the BIR

and DOF to promulgate and execute the functions of the NTRC: (1) Undertake

comprehensive studies on the need for additional revenue for accelerated national

development and the sources from which this might most equitably be derived; (2) Re-

examine the existing tax system and tax policy structure; (3) Conduct researches on

taxation for the purpose of improving the tax system and tax policy; (4) Pass upon all tax

measures and revenue proposal; (5) Recommend of such reforms and revisions as may

be necessary to improve revenue collection and to formulate sound tax policy and a more

efficient tax structure.

JOHN REY D. ABELLANIDA
PUBLIC POLICIES AND PROCESSES
MPA 464

REFERENCES

http://www.bir.gov.ph/index.php/rulings-and-legal-matters/guide-to-philippines-

tax-law-research.html

http://www.bir.gov.ph/index.php/tax-code.html#title2

http://www.chanrobles.com/legal6nationalinternalrevenuecodeof1997.html#.V1RD

k_l97IV

http://www.rappler.com/business/211-governance/105837-aquino-no-income-tax-

cut

http://fitzvillafuerte.com/philippine-tax-reforms-to-watch-out-for-in-2015.html

http://cnnphilippines.com/business/2015/04/09/taxes-a-love-hate-relationship.html