My Opinion on RA 9504 (The Republic Act ammending the National Internal Revenue Code Relative to the Withholding of Income Tax on Compensation)

I am quite interested on the forthcoming BIR's approved Revenue Regulation on RA 9504 , otherwise known as The Republic Act amending the National Internal Revenue Code Relative to the Withholding of Income Tax on Compensation. On July 1, the Bureau of Internal Revenue conducted a public hearing relative to the published revenue regulations draft in its national office. As I have previously highlighted on my post "Increased Tax Exemptions for Individual Taxpayers", the personal exemptions increased to Php.50,000 and Php.25,000 per dependent on the additional personal exemption. Further, this law exempts the minimum wage earners the requirement of withholding tax and increases the threshold of exemption as minimum wage at Php.10,000 per month (Php.120,000 per year) if the said amount is higher than the minimum wage of the locality. Exemption on withholding tax applies further to holiday pays, hazard pays, overtime pay and differential pay received by minimum waged earner. RA 9504 further increases also the Optional Standard Deduction (OSD) for those individuals who are earning business income from 10% to 40%.

But reading through the draft revenue regulation, these aren't as simple as it seems. Though this law clearly expresses it's intent to alleviate the low income earners of the working class Filipinos, this creates so much confusion on the part of the employers, more specifically - the cubicled Corporate Finance Warriors that will be tasked perform the requirement of the BIR. Here are my points:

1. Though the law provides for an increase in personal and additional exemptions to cover dependents, this will be effected on a pro-rated basis. The old personal and additional exemptions will still be effected on the individual's income covering January to June while the new exemptions will be for July to December. Even though this can simply be remedied with the aide of a spreadsheet, imagine the tediousness of the activity of dividing the personal and additional exemption by two and applying it to the individual's income and then accordingly adjust the taxes withheld to date. This in effect entails a preparation of an Alphalist of Employees as of June 2008.
   
2. Though clearly now identifies that all income received by minimum waged earners will be exempted from withholding taxes, the fact still remains that such exemption does not exclude the person from paying income tax. It is thus of this reason perhaps that the BIR now requires employers to compute for the taxes due of minimum waged earners for the period January to June and these shall then be deducted to the minimum-wage employee's payroll for July. Again, an Alphalist preparation on the part of the employer - Annual Alphalist preparation procedure by the company for a period covering 6 months. Further, this will require also an HR undertaking to explain such deduction to minimum-wage employees' payroll.
   
3. The law on exempting minimum-waged employees from withholding taxes is merely a temporary remedy and may even give burden to these minimum income level employees when the time to pay for income taxes arrives come April 15th. This temporary solution is clearly seen as such because of the provision on the draft regulation where minimum-wage employees are given the option to be subjected to withholding tax by requesting from employers "in writing" that the minimum-wage employee be deducted with withholding tax.

In my conclusion, the law simply fortifies that Taxes are the bloodlines of the Government. Though one may be exempted from withholding taxes, this does not exclude the same from income tax payment. The law, in effect, could only be highlighted with this features: Increase in Personal and Additional Exemptions (but then again, this is still on a pro-rated basis for 2008). Stating the exemption of minimum-waged earners from income taxes and increasing the 40% OSD on individual business-income earners are but moth and academic.