Recto calls for immediate debate on bill raising tax exempt cap on worker bonuses

MANILA-. Ralph G. Recto today pressed for immediate debates on his measure raising the annual tax exemption ceiling on employee bonuses, 13th month pay and allowances to P75,000 from the current threshold of P30,000.

He said changing the current limit is long overdue “as it was pegged 20 years and three presidents ago and has been eroded by inflation.”

The P30,000 ceiling was first introduced in 1994 upon the effectivity of Republic Act No. 7833, Recto said.

“The   tax imposed on bonuses and allowances exceeding P30,000 is outdated. It was pegged when the basic salary scale of state employees was only P2,800 and the salary of the Philippine President was only P25,000,” Recto said.

Currently, the basic pay scale of government employees is P8,287 while the salary grade of the chief executive is P120,000.  

The 1997 National Internal Revenue Code Section 32(B) Chapter VI states that private and government employees having bonuses beyond P30,000 were automatically subjected to income tax.

Recto's bill seeks to shatter the threshold of P30,000 so that bonuses and allowances up to P75,000 would be exempt from income tax.

The senator said adjusted for inflation the P30,000 tax exemption ceiling is worth less than half today as computed by two government agencies.

“If adjustments for inflation were reckoned from 1994, the National Tax Research Center said that exemption ceiling should have been raised to P72,000 in 2011 while National Economic Development Authority computed it at P75,000,” Recto said.

“And that was three years ago and inflation has inched up again since,” Recto said.

In his bill, Recto also batted for the indexation of the tax-exempt bonus ceiling to inflation every three years “so that its adjustment is scheduled and not subjected to the whims of whoever is in power.”

The guide in computing the new rates shall be the Consumer Price Index as published by the National Statistics Office, Recto said.

Recto urged the government to at least start discussions on recalibrating tax rates which have been rendered obsolete by inflation.

He said the adjustment of the tax-free zone on bonuses partly solves the plight of government employees who staged simultaneous walkouts last week to protest renewed moves to tax their allowances.