ANALYSIS OF
PHILIPPINE INCOME
TAXATION: INDIVIDUAL
INCOME TAX
1. Introduction
One of the Inherent Powers of the State is the Power of Taxation. It refers to the
inherent power of the state to exact an enforced contribution upon persons, property
or rights for the purpose of generating revenues for the use and support of the
subdivision. In taxation, there is generally no limit to the amount of tax that may be
imposed.
The Basic Principle of Sound Tax System are Fiscal Adequacy, Equality or Theoretical
Fiscal Adequacy means that the sources of revenue as a whole must be adequate to
proportionate distribution of the tax burden, which means that the tax burden shall
be shouldered by those who have the ability to pay. The ability to pay is gauged by
the income received by the taxpayer. Those with greater income must pay more as
they have greater ability to pay than those with lesser income.
Administrative Feasibility means that the tax laws must be capable of reasonable and
convenient enforcement, just/ effective administration. The tax laws must be capable
by the taxpayers as to the time, manner and procedures of filing tax returns and
payment of taxes.
Ordinary individual taxpayers are those required to file their individual income tax
returns and are normally taxed at the graduated income tax rates of 5% to 32% based
The main source of Philippine Taxation is the National Internal Revenue Code.
Republic Act (RA) No. 8424, otherwise known as the National Internal Revenue Code
of 1997, as amended (Tax Code) became effective on Jan. 1, 1998 and for the past 16
years, despite the effects of inflation the levels of individual income tax brackets and
tax rates have remained essentially the same, albeit with very few changes. Really, 16
According to the Section 28, Paragraph 1 of the 1987 Philippine Taxation, The rule of
taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
Essentially, progressive taxation reduces the tax incidence of people with a lower
ability to pay, and instead shifts this to those with a higher ability to pay.
There are currently 10 bills filed in the House of Representatives and 3 in the Senate
House Bills
There are ten (10) measures filed by the House of Representatives and here are some
House Bill 4278 – Rep. Angelina Tan, M.D. (4th District, Quezon)
To fully benefit from the ASEAN Integration in 2015, Tan seeks to reduce the income
House Bill 4372 – Rep. Rodrigo Abellanosa (2nd District, Cebu City)
Abellanosa seeks to modify further Section 24 (A) (2) of the National Internal
Revenue Code of 1997, as amended, to lower income tax rates at unchanged salary
levels.
He proposed to lower the tax rates from 32% to only 15% for those earning P20,000 to
P70,000 starting Jan. 1, 2015, then 13% beginning Jan. 1, 2016, and 10% starting on
Jan. 1, 2017.
House Bill 4099 – Rep. Magtanggol Gunigundo (2nd District, Valenzuela City)
Gunigundo proposes to lower individual and corporate income tax rates to 15% from
the current 32% and 30%, respectively. He’s expecting this to result to a reduction on
the number of Filipinos not paying taxes, as lower taxes mean higher levels of
compliance.
This bill proposes a flat rate of 25% income tax and a 5% minimum income tax rate
for self-employed individuals and professionals, a reduction in the corporate income
tax rate from 35% to 25%, and an increase in the minimum corporate income tax rate
below P20,000 and a 35% income tax for those making over P500,000, but not over P1
million.
Under this bill, minimum wage workers will continue to be exempt from income tax.
It seeks to revise Section 24 (A) (1) of Republic Act No. 8424 (National Internal
Revenue Code of 1997), as amended by Republic Act No. 9504 to lower the taxes on
the low-income earners, allowing them to have a higher net income, thereby
Senate Bills
This bill proposes a new schedule that would impose no taxes on net income below
P20,000, a 10% tax for a net taxable income below P60,000, 15% for P60,000-P140,000,
20% for P140,000-P280,000, 25% for P280,000-P500,000, and 30% for P500,000-
P1,000,000.
It also proposes to index the net taxable income levels and nominal tax rates
automatically to inflation every six years, without the need for legislative action.
According to this bill, tax rates should be adjusted every six years “to its present
value using the Consumer Price Index, as published by the NSO”. Those earning
A 15% tax will be imposed for those who have earned over P60,000 up to P140,000 a
year, 20% for P140,000-P280,000, 25% for P280,000-P500,000, 30% for P500,000-P1
million, 32% for P1 million-P12 million, and 35% for those earning over 12 million.
SB 2149 – Senator Juan Edgardo Angara
The bill seeks to reduce the country’s individual income tax rate from the current
The tax rate for those earning between P20,000-P70,000 will be lowered to 10% from
15%, 15% for P70,000-P200,000, 20% for P200,000-P500,000, 22% for 500,000-P1
million.
Senator Aquino’s proposal could have the lowest revenue loss at 1 percent of the
estimated total revenue under the existing tax regime. (The main reason is that they
also propose to increase the tax rate of the wealthiest.) This is followed by Senator
Recto’s proposal (at 5 percent of the total revenue under the existing tax regime).
Initially, Senator Angara’s proposal could decrease total revenue by only 3 percent.
In 2016, the decrease could rise to about 15 percent. In 2017 (and onwards, once the
new regime is made permanent), the decrease in revenues compared to the baseline
(2012) revenues, could increase to 25 percent for the Angara proposal. This is largely
because his proposed tax cuts are the deepest, and they also apply (at least in part) to
All these measures acknowledge the unfairness and inequality of the prevailing
Main Problem: Does the National Internal Revenue Code as amended or RA No. 8424
change?
Sub-Problems:
2. Does our tax system keep in step with global corporate trends?
3. Is there any legal way to avoid or at least minimize the tax liabilities of
individual?
4. How heavy is the tax burden of one taxpayer compared to others’ tax
burden?
5. What is the effect of the rising of inflation rate? Does it means that
3. Definition of Terms
4a. Objective
The objective of the study is to study the current individual income tax whether it
complies on what is in our 1987 Constitution which is the tax system should be
This study will help the legislators, the individuals and groups in the Philippines on
The government can use this study to identify on what will be the effect on the
5a. Scope
This study is premised at analyzing the effectiveness of current income tax. This
study will focus on the middle class workers, those who are currently paying an
This study is restricted also in identifying the possible causes of ineffective tax
system and reasons on inputs behind the oending bills on income tax reforms.
5b. Limitation
addressed by future researh to augment and enhance the findings of the present
study.
The first limitation is that the present research did not analyze all the income tax
payers but only focus on the middle class. It will only limited on the income tax rates
imposed on the middle class. Hence, it is possible that in general, when we consider
the effects of income tax reforms as an overall including the upper class and lower
The second limitation is that the analysis will only focus on the individual income tax
and will not consider the effect of other kinds of taxes that are currently imposed in
our country like the estate tax, donation tax and corporation.
has the second highest average tax rate (after Vietnam and Thailand). On the
other hand, Singapore has the lowest marginal tax rate at both ends of its tax
bracket spectrum, at 20% for the wealthiest and 2% for the lowest qualifying
income tax payers. (Compare this with 32% and 5% for the Philippines.) If we
also consider the value-added taxes in ASEAN, the Philippines comes on top
Table 1: Marginal
ASEAN Countries
Vietnam 35% 5%
Thailand 35% 5%
Philippines 32% 5%
Indonesia 30% 5%
Malaysia 26% 2%
Myanmar 25% 5%
Laos 24% 5%
Cambodia 20% 5%
Singapore 20% 2%
country. In order to be considered part of this group, one’s annual gross income
P65,631.00 in income a month. We acknowledge that many of you will find this range
too large. But if we take this to be a useful illustrative guesstimate for now, then that
study indicates that there are 4.66 million families (roughly 25% of the total
population) in the middle class. (Compare this with roughly 14 million families (or
75% of the population) belonging to the lower class, of which over 4 million families
In a recent study at the AIM Policy Center, they turned the data from the Bureau of
spanning 41 industries, comparing their average gross annual wages for 2008 and
2012. The comparison also took note of the change in the applicable marginal tax rate
for each occupation. Of the 362 occupations,101 occupations (28%) indicated higher
applicable marginal tax rates in 2012, implying that more taxpayers probably shifted
In the USA, the tax burden is a hotly debated topic and has been the subject of
numerous studies. One study done in Boston, Massachusetts, set out to establish the
beliefs of one segment of society about the poor and how that view differed from the
Fullerton and Rogers (1993) investigated the question (originating from the debates
around tax policies) of who bears the ultimate tax burden. Lav (1998) focused on the
question of how much tax a typical family pays. Other studies in the USA include
one by the National Bureau for Economic Research (NBER) on the question of
survey by the tax foundation on the attitudes of taxpayers, asking questions such as
whether respondents consider the amount of federal income tax they pay as too high,
2. Conceptual Framework
The income tax reform is one of the current issues in our country on these days. The
households as case studies. The purpose of the case study research was to assess the
References