Saturday, October 18, 2008 Tax 'discounts' not retroactive By Nancy R. Cudis Sun.Star Staff Reporter
SINCE the new law exempting minimum wage earners from paying income tax and granting exemptions for other workers took effect only last July, employees will only enjoy a portion of the tax break this year.
Republic Act (RA) 9504 only took effect in July 6, so minimum wage earners are still required to file an income tax return for the compensation earned from Jan. 1 to July 5, 2008 on or before April 15 next year, said lawyer Raymund Gallardo, Punongbayan and Araullo (P&A) partner for tax advisory and compliance.
He said that the transition rules provided by the Bureau of Internal Revenues (BIR) for RA 9504 state that the tax exemptions and upgrades indicated in the law are not retroactive to Jan. 1, 2008.
RA 9504 exempts minimum wage earners (MWEs) from paying income tax, upgrades the level of personal and additional exemption allowances for all earners and for individuals with dependents or children.
Although it will affect the revenue collection targets of the government, it will increase the take-home pay of MWEs and lower taxes for other earners.
The law was signed last June 17 and was publicized five days later. The law took effect last July 6 but its rules and regulations were only issued by the BIR last Sept. 24.
During the P&A-organized tax seminar last Wednesday at the Cebu Parklane International Hotel, Gallardo said that workers earning at least the minimum wage in his region will only be exempt from withholding or income tax starting July 6, 2008.
This exemption extends to MWEs’ overtime pay, holiday pay, night shift differential and hazard pay.
New levels
Other earners, for their part, will be required to use old tax exemption levels from Jan. 1 to July 5, 2008 and new exemption levels starting July 6, 2008.
“This is what the BIR said because, according to them, the law only took effect in July,” said Gallardo.
RA 9504 states that all taxpayers—whether single, married or a head of the family—will have a maximum of P50,000 annual income tax exemption. In the old tax code, single taxpayers only get P20,000 exemption, a head of the family gets P25,000 and married individuals get P32,000.
The new law also increases the exemption from P8,000 to P25,000 per child but only up to four children.
But taxpayers are going to use the pro-rated exemption allowances provided by BIR for 2008 while the full amount of tax exemptions can only be availed starting 2009.
Under the pro-rated version for 2008, old tax exemption rules were calculated for Jan. 1 to July 5 while new exemption levels were computed for July 6 to Dec. 31.
As a result, an earner who is single will have a total pro-rated tax exemption of P35,000 for 2008; a head of the family will have P37,500; a married earner will have P41,000; and those with a qualified dependent will have additional P16,500 tax exemption per dependent.
