  
The Tax Structure of the Individual Income Tax The CTRP introduced wide-ranging reforms on individual income taxation. Bearing in mind its primordial goal of providing equity into the income tax system, government adjusted the personal exemptions that the taxpayers can avail of, thereby removing the poor those families living below the poverty threshold- from the tax net. |
 |
Under Section 35 of the CTRP, the new basic personal exemptions are as follows:
|
CTRP |
Old Tax Code |
|
|
For single individual or married individual judicially decreed as legally separated with no qualified dependents |
P 20,000 vs |
P 9,000 |
|
For head of the family |
25,000 vs |
12,000 |
|
For each married individual |
32,000 vs |
18,000 |
|
Additional exemptions: For each dependent not exceeding four (4) |
8,000 vs |
5,000 |
The CTRP also freed the GSIS, SSS, Medicare and Pag-ibig contributions of individual taxpayers, including their union dues (Sec.32 (B) (h) from being considered as part of gross income (Sec. 32 (B) (7) (f)). This tax relief is almost equivalent to an additional exemption of P10, 000. A special deduction of P2,400 was also made for health insurance premiums of families with gross incomes of P250,000 and below (Sec. 34 (M)).
Considering all these exemptions and allowances, a family with four children (4) with a total income of P108,000 is exempt from income taxation under the CTRP.
The CTRP also restructured the income tax schedule in order to evolve a flatter structure (Sec. 24 (c). This reform was made to lessen the disincentive to work efforts and productivity which a steep tax structure brings. Efforts were also made to broaden the tax brackets so that additional wages or earnings would be subject to the same tax rate and not to a higher marginal tax rate. Finally, the highest marginal rate was brought down from 35 percent to 32 percent.
The tax rates on incomes of individual taxpayers are as follows:
|
Taxable Income |
Tax Rates |
|
Not over P10,000 |
5% |
|
Over P10,000 but not over P30,000 |
P500 + 10% of 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 + 33% of the excess over P500,000 in 1998 |
The top marginal rate is to be further reduced to 32% effective January 1, 2000.
To enhance the horizontal equity of the income tax, or the similar treatment of taxpayers earning the same income, a uniform tax rate schedule applies to salaries, business income, as well as income from trade, and from the practice of one's profession. Prior to CTRP, different tax schedules applied to different sources of income.
The CTRP retained the modified gross income tax base for individuals receiving wages and salaries, and the net income base for individuals with business income. This means that in addition to personal exemptions, individuals with business income can deduct business-related expenses from their gross income. These are the deductions under Sec. 34 of Tax Code which are also applicable to corporations.
