Sunday, July 13, 2008 Lim: Tax break By Melanie T. Lim Wide Awake
PROBABLY the best news I’ve heard in a very long time is Republic Act (RA) 9504 signed into law by the President last June 17.
Exempting minimum wage earners from both the private and public sector from paying income tax, this much-awaited tax break brings immediate relief, if not increased purchasing power to many families living on meager minimum wage.
Minimum wage is fixed at P382 daily in Metro Manila and ranges from P180 to P320 in other regions across the country.
This tax exemption granted to minimum wage earners also extends to additional compensation received for holiday, overtime, night shift differential, hazard pay and others.
In addition, the personal exemptions of individual taxpayers have been revised and increased. Whereas the old system assigned a personal annual exemption of P20,000 for the single taxpayer, P25,000 for the head of the family and P32,000 for the married, the new system makes no such distinction. RA 9504 grants a P50,000 personal annual exemption for individual taxpayers regardless of whether one is single, married or head of the family.
And for taxpayers with qualified dependents, one can avail himself or herself of an additional deduction of P25,000 for each qualified dependent. The maximum number of dependents one can make claims for remains at four. Again, this is an improvement from the old system which only allowed a deduction of P8,000 for each qualified dependent.
A qualified dependent is defined by law as a legitimate, illegitimate or legally adopted child living with the taxpayer, not more than 21 years old, unmarried and not gainfully employed.
There is also good news for those engaged in business or in the practice of a profession. RA 9504 has increased the optional standard deductions (OSD) of individuals from 10 to 40 percent of gross sales or gross receipts. Further, corporations are now allowed to avail themselves of OSD at 40 percent of gross income whereas previously, corporations were only allowed to claim itemized deductions in arriving at their taxable net income.
The OSD scheme is an option that may be availed of by an individual and now, corporate taxpayer where in lieu of having to list all business expenses to claim deductions to arrive at net taxable income, one can opt simply to deduct a 40 percent lump sum from the gross revenue/income for purposes of arriving at net taxable income or the amount subject to tax.
This law is already in effect.
Contact your bookkeepers and/or accountants or the Bureau of Internal Revenue for implementing guidelines.
Employers should take note that July payroll will be affected by RA 9504. If you are a wage-earner, take note that you will be receiving more this July.
May this be the beginning of more tax breaks to come. A tax break, after all, will no doubt increase consumer spending and as a result create more businesses and jobs that will hopefully give our economy a much-needed boost.
