Lowering individual income tax rates

THERE is a bill introduced by Senator Bam Aquino that seeks to amend the income tax rates for individual taxpayers.

- Atty. Rodel C. Unciano

The measure aims to revisit the current rate schedule and provide relief to individuals, many of whom earn purely compensation income. The proposal is a welcome development and deserves serious consideration, particularly in light of the continuing rise in the cost of living.

Currently, under Section 24 of the 1997 Tax Code, as amended, individual taxpayers are subject to agraduatedincome tax system with atax-exemptthreshold of P250,000 annually and amaximum marginal rate of 35 percent. While the TRAIN Law (Tax Reform for Acceleration and Inclusion) previously reduced rates for individual income earners, the structure still reflects a low threshold for exemption and relatively steep progression at the higher brackets.

Under the bill, the personal income tax exemption is being proposed to increase from P250,000 to P480,000 annually. The progressive tax rates are retained with slight adjustments, starting at 15 percent for thelowestbracket, graduallyincreasing to 20 percent and 30 percent for higherearnings, whilethemaximum rate of 35 percent remains for the highest income bracket.

While the proposal will provide a sigh of relief particularly for lower-income earners, in my view, the reform can go further. Perhaps, we can consider increasing the tax-exempt threshold to P600,000, and the maximum marginal rate reduced to around 25 percent, or at least aligned more closely with the corporate income tax rate of 20 percent to 25 percent. The progressive rates on the other hand could start from 5 percent to 10 percent and increase gradually up to the maximum. Such a recalibration would, to my mind, better reflect current economic realities.