Press Release
January 11, 2006

*Senate to make minimum wage tax-exempt*

Sen. Ralph Recto today bared the Upper Chambers plan to chisel in stone the personal income tax exemption of those currently earning the minimum wage.

While he commended Malacañang and the Finance department for coming up with a revenue regulation exempting minimum wage earners from the withholding tax, Recto said the directive merely defers the payment of the income tax to April 15 of the following year.

It is not tax exemption. What it merely says is that your salary will no longer be subjected to withholding tax every month but you will still pay the tax later. While tax is no longer withheld monthly, you are still liable to pay for it in full come filing time. It shifts from deferred payment of tax to delayed payment of tax, he said

What workers need is to make the relief permanent, Recto said. And we can do it by revising the tax code by raising exemptions so that a minimum wage earner today would be spared from paying a tax.

The statutory minimum wage varies per region with Metro Manila the highest at P325 a day.

With 22 working days a month, and at 13 months a year, the gross pay of a minimum wage earner is P92,950. Jointly, a married couple of minimum wage earners make P185,900 a year.

This amount will be the point of discussion when the Senate ways and means committee, which Recto chairs, meets this month to set the new threshold for personal income, he said

The new tax-free zone should be in this area, Recto said. He said the Department of Finance will be closely consulted in crafting legislation because of their valid concerns about the revenue loss that such a tax relief would cause.

At present a family of two income-earners and four dependents can claim a maximum of P96,000 in deductions plus a tax credit of P2,.400 for health insurance payments, Recto said. Despite their meager income, they still pay P13,220 in income tax every year.

As the current tax bracket was set almost ten years ago, Recto said a new benchmark in tax exemption is in order.

Exempting the minimum wage from income tax would benefit 1.88 million workers, Recto said, citing tax filing data from the Bureau of Internal Revenue.

In the Senate, bills for increasing the individual income exemptions have been filed by Recto and Sen. Juan Ponce Enrile.

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