Wednesday, November 19, 2014

Recto : Higher tax cap on 13th month pay merely recovers what was lost to inflation

MANILA-The senator who introduced the amendment to raise to P82,000 the tax exemption cap for 13th month pay and other bonuses says the amount merely restores the value of the peso which has been lost to inflation since 1994.

Sen. Ralph Recto, principal author of the bill increasing the no-tax zone on bonuses, said the peso has lost two-thirds of its value over the past 20 years.

“One peso in 1994 is worth 36 centavos today. Adjusted to inflation, the P30,000 then should be P82,300 today. That is why we peg the new cap at P82,000,” Recto said.

The P30,000 cap entered the tax code in 1994 when, Recto recalled, “the minimum jeepney fare was P1.50, rice was P13 a kilo, bread was sold for P7 a loaf, gasoline was priced at P8.50 a liter, a can of sardines was P6.”

He said the P30,000 was set so that it could cover the highest salary in the government then which that of the President who was then receiving P25,000 a month.

“The idea was that when all government employees get their 13th month pay, it will be in full and without tax deduction.”

Recto said the hike in the tax exempt cap should not be viewed as a revenue loss for the government but as “income gained by the workingman.”

“And even if his 13th month pay is tax-exempt upon receipt, it will be taxable when spent, so tax not withheld at source will later be captured in the form of sales tax at points of sale,” the senator explained.

Another good point of the bill passed by the Senate on Second Reading on Tuesday is that the tax cap on the 13th month pay and other benefits will now be indexed to inflation.

“There is now automatic adjustment every three years,” he said.

“This means the adjustment is a mandatory executive action. No need to run to Congress for a law setting a higher threshold,” Recto said. 

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