Republic Act 9504 – Tax Exemptions for Minimum Wage Earners and Increased Tax Exemptions

UPDATE (6/28/2008): The Bureau of Internal Revenue (BIR) has recently published its draft Revenue Regulation for the implementation of Republic Act 9504 (RA 9504).  It is also conducting a public hearing July 1, 2008 (Tuesday), 8:00 to 12:00 Noon at the BIR National Training Center Auditorium, BIR National Office Compound, Quezon City.

You can download the draft here (via RapidShare). Source: BIR

UPDATE (7/10/2008): Full text of RA 9504 is now posted here

(If you are copying this entire post please credit the author and the blog.)

IT’S NOW A LAW--President Gloria Macapagal-Arroyo shows off a copy of the Tax Relief for Minimum Wage Earners Act after she signed it into law Tuesday (June 17, 2008) at Malacanang\'s Reception Hall. With the President in photo are (standing, first row, from left) Senator Manuel Mar Roxas, Senator Juan Ponce Enrile, and Francis Escudero, Reps. Ma. Amelita Villarosa, Edcel Lagman, and Mary Anne Susano, House Speaker Prospero Nograles, and Rep. Exequiel Javier and other legislators. (Rey Baniquet/OPS-NIB Photo)

IT’S NOW A LAW–President Gloria Macapagal-Arroyo shows off a copy of the Tax Relief for Minimum WageEarners Act after she signed it into law Tuesday (June 17, 2008 ) at Malacanang’s Reception Hall. With the President in photo are (standing, first row, from left) Senator Manuel Mar Roxas, Senator Juan Ponce Enrile, and Francis Escudero, Reps. Ma. Amelita Villarosa, Edcel Lagman, and Mary Anne Susano, House Speaker Prospero Nograles, and Rep. Exequiel Javier and other legislators. (Rey Baniquet/OPS-NIB Photo)
Photo from the Office of the Press Secretary

President Gloria Arroyo has signed Republic Act 9504.  Its official title is, An Act Amending Sections 22, 24, 34, 35, 51 And 79 of Republic Act 8424, As Amended, Otherwise Known As The National Internal Revenue Code Of 1987.” This new law will exempt minimum wage earners from paying income tax, increasing tax exemption for all earners and additional exemptions for individuals with dependents/children.

This means that anyone earning at least the minimum wage in his/her region will not pay income tax.  The exemption extends to overtime pay, holiday pay, night shift differential and hazard pay of minimum wage earners only. Below is an quote from the law’s text:

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All individuals will have a maximum of P50,000 annual income tax exemption.  This simply means that a person earning a gross annual salary of P180,000 (excluding the mandatory 13th month pay, which is tax free) per year will only pay income tax on the P130,000.  The new exemption is for all persons whether single, married or head of the family.  In the old tax code, RA 8284 it gave single individuals only a P20,000 exception, head of families P25,000 and married individuals P32,000.

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For married couples, the new law increase the additional exemptions based on the number of their children. In the old law, each couple is allowed an exemption of P8,000 per child up to 4 children. The new law increases the exception to P25,000 per child up to 4 children.   Therefore, a family with four children will have a maximum exemption of P200,000.  It is a substantial increase from the previous P96,000 per family with four children.  In theory, a family with four children earning exactly or below P200,000 per year will not be subject to income tax.

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The law simply means more take home or net pay for minimum wage earners and lower taxes for the middle class.  This is a much welcomed relief from the higher cost of living.

The government, however, estimates a revenue loss of about P14 billion per year.  With the increased spending due to higher net pay VAT collections may offset the loss in revenue.

[The new act also changes how professionals or non employees pay their tax.   I personally don't have knowledge on this particular item so I won't attempt to discuss it.]

The new law will benefit income earners from this year (2008 ) onwards.  To be more specific, RA9504 Section 9 states that, “This Act shall take effect fifteen (15) days following its publication in the Official Gazette or in at least two (2) newspapers of general circulation.”

Please contact your respective employers on how they will adjust your withholding tax payment for 2008.

Below is an illustration on how it affects take home/net pay:

ciudadista.wordpress.com

Notes:

(1) The illustration will not apply to everybody’s case.  Please consult a licensed accountant, tax advisor or your human resources department to know how the new law will affect you specifically.

(2) The SSS, Pag-IBIG Fund and Philhealth contributions are based on a monthly salary of P15,000 per month.

(3) Statutory Exemption: In RA 8424 single income earners get only a P20,000 personal tax exemptions. RA 9504 grants a P50,000 tax exemption regardless of status.

(4) This is how the income tax is computed for single person as per RA8424 Chapter 3 Section 24 (see below):
Then: P22,500 + ((P150,550 – P140,000) x 25%)
Now: P8,500 + ((120,550 – P70,000) x 20%)

RA8424 Chapter 3 Section 24:

“The tax shall be computed in accordance with and at the rates established in the following schedule:

“Not over P10,000 –> 5%

“Over P10,000 but not over P30,000 –> P500+10% of the excess over P10,000

“Over P30,000 but not over P70,000 –> P2,500+15% of the excess over P30,000

“Over P70,000 but not over P140,000 –> P8,500+20% of the excess over P70,000

“Over P140,000 but not over P250,000 –> P22,500+25% of the excess over P140,000

“Over P250,000 but not over P500,000 –> P50,000+30% of the excess over P250,000

“Over P500,000 –> P125,000+34% of the excess over P500,000 in 1998

Please see the text of Senate Bill 2293 which has been signed into law and has become Republic Act 9504. Download/Read it here. Please check the Senate, House and Bureau of Internal Revenue(BIR) websites from time to time for the official text of the law.

Read the press release from the Office of the President here.

UPDATE (6/28/2008): The Bureau of Internal Revenue (BIR) has recently published its draft Revenue Regulation for the implementation of Republic Act 9504 (RA 9504).  It is also conducting a public hearing July 1, 2008 (Tuesday), 8:00 to 12:00 Noon at the BIR National Training Center Auditorium, BIR National Office Compound, Quezon City.

You can download the draft here (via RapidShare). Source: BIR

UPDATE (7/10/2008): Full text of RA 9504 is now posted here

Media Coverage:
Arroyo signs tax exemption measure for minimum wage earners (1:43 p.m.)
By Sun Star Network Online | June 17, 2008

Minimum wage earners get tax relief
By Michael Lim Ubac – Philippine Daily Inquirer | 06/18/2008

Tax relief package favors middle class, says Monsod
By Doris Dumlao – Philippine Daily Inquirer | 6/18/2008

GMA signs tax-exemption bill into law
By Mia M. Gonzales – Business Mirror | 6/18/2008

 

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