The poorest 50 percent of households earning P5,000 or less a month apiece will get unconditional cash transfers of up to P6,000 a year each in the initial phase of the tax reform program submitted last September by the Department of Finance (DOF) to the Congress.

Finance Undersecretary Karl Kendrick Chua said highly targeted social protection programs to vulnerable sectors, rather than providing outright tax exemptions to both rich and poor, would better shield them from the impact of the reforms in tax policy and administration that the DOF is pushing under its proposed Tax Reform for Acceleration and Inclusion Act.

“We propose to do a highly-targeted subsidy reform program wherein … the poorest 50 percent of households will be fully protected through a highly-targeted unconditional cash transfer in the initial year, and that means around P200 to P500 per month or up to P6,000 over a year, and this is calibrated based on the possible increase in inflation and the impact of the higher oil (tax increase) on their lives,” said Chua at a recent Tax Reform Forum organized by the Financial Executives Institute of the Philippines (FINEX).

These are just some of the expanded benefits that the DOF is now finetuning with other government agencies to cushion on the country’s vulnerable sectors the impact of the proposed fuel excise tax adjustments and the removal of certain exemptions to the value-added tax (VAT), which form part of Package One of DOF-proposed Tax Reform for Acceleration and Inclusion Act.

Such measures, along with improvements in tax administration, will help offset the revenue loss from the reductions in the personal income tax rate that the DOF is proposing under Package One, which it submitted to the Congress last Sept. 26.

Chua, who is also the DOF’s chief economist, said minimum-wage earners and other members of the working class identified as those earning more than P5,000 but not over P12,000 a month would be protected from the effects of the excise tax adjustments on petroleum products by providing drivers and operators of public utility vehicles with cash cards similar to the Pantawid Pasada Program to ensure that their pass-through costs would only be around 50 centavos.

“Also, complementary to the measure, we should address the other problems of traffic, of improving their engines to make these more efficient; if we address the corruption on the streets, which we hear some authorities collect bribes from jeepney drivers, [then we probably do not need to see any increase,]” Chua said.

Chua said even the middle class would still be protected because they can use the savings they will get from paying lower personal income taxes to cancel out the effect of the fuel excise tax adjustment.

According to Chua, entry-level workers earning more than the daily minimum wage would effectively enjoy significant increases in their take-home pay because they will pay lower taxes under the DOF-proposed tax reform program.

For instance, “entry-level employees with a monthly salary of P13,378 and no declared dependents would see an increase in their take-home pay by P12,673 per year,” he said. The amount of P12,673 is the personal income tax they pay under the current system, which would be reduced to zero under the DOF tax reform plan.

Some 3 million taxpayers earning above the minimum wage but not over P250,000 per year would automatically increase their take home because they would be exempted from paying taxes.

The country’s 1.7 million minimum-wage earners (MWEs) are already exempted from paying income taxes.

With the current daily minimum wage at P491 in the National Capital Region (NCR), the MWEs earn P12,488 a month or a total gross income of P218,832 per annum–comprising a basic salary of P149,856 plus 13th month and other benefits totalling P34,976 and minus P34,000 in mandatory contributions like those for the Social Security System (SSS) and Pag-IBIG.

Entry-level workers paid above the minimum wage, like those in the Clerk III category, are also exempted from paying income taxes because they each get a monthly income of P13,378 or an annual gross income of P231,292–comprising a basic salary of P160,536 plus 13th month pay and other benefits totalling P36,765, and minus mandatory contributions of P34,000.

Right now, these entry-level workers are supposed to each pay an annual income tax of P12,673.

This means that a total of 4.7 million taxpayers, which make up 83 percent of the tax base for individuals, would be exempted from paying income taxes under the DOF-proposed tax reform plan, Chua said.

Another half-million plus taxpayers earning between P250,000 and P400,000 will pay taxes equivalent to only 20 percent of their incomes in excess of P250,000 by 2018, the first year of implementation of the DOF-proposed tax plan.

From 2019 and onwards, they would have to pay a personal income tax of only 15 percent of the amount in excess of P250,000.

Taxpayers earning P400,000 to 800,00 will pay P30,000 in tax plus 25 percent of their annual gross income in excess of P400,000. The tax would be adjusted in 2019 and onwards so that those belonging to this bracket would pay a lower rate of P22,500 plus 20 percent in excess of P400,000.

Those earning P800,000 to P2 million per year would pay a tax of P130,000 plus 30 percent in excess of P800,000. In 2019 and onwards, the rate would be reduced to P102,500 plus 25 percent in excess of P800,000.

Some 28,000 individuals earning P2 million to P5 million or 1 percent of the tax base would be taxed P490,000 plus 32 percent of their annual gross income in excess of P2 million. They would benefit from a lower tax rate of P402,500 plus 30 percent in excess of P2 million from 2019 and onwards.

The last bracket of ultra-rich taxpayers comprising less than 6,000 individuals earning over P5 million would have to pay a tax of P1.45 million plus 35 percent in excess of P5 million. From 2019 and onwards, the tax rate would be dropped to P1,302,500 plus 35 percent in excess of P5 million.