RA 9504

Republic Act 9504 is a law passed in 2008 that made several amendments to the National Internal Revenue Code. It has three (3) important features:

1.) Exemption of minimum wage earners from income tax

2.) Increase of personal exemptions

3.) Increasing Optional Standard Deduction to 40% of gross income and making it available to individual taxpayers.

The first item:

The idea of exempting minimum wage earners from income tax seems like a pretty good idea. But the problem is that minimum wage varies from place to place in the Philippines and is fixed by each Regional Tripartite Wage and Productivity Board. So what may be minimum wage in one place may not be minimum in the other. Another problem comes into view (something worse than the first.) Remember that tax exemptions must be complied with strictly or no exemption will be granted? If an employee's income goes up, he'll be subject to income tax. It therefore becomes a deterrent to working harder. People will not want a pay raise or they'll be taxed.

The second item:

Here, personal exemptions for individuals, heads of families as well as married person have been increased to Php50,000 per individual. This means a married couple can claim an annual exemption of Php100,000 per year for themselves. Also, exemptions for dependents have been increased to Php25,000. Here, the maximum limit of four (4) still applies. Hence, a family with four children may claim an annual exemption of Php200,000.

Note, however, that the head of a family cannot claim the exemption of an individual or of a married person. The same rule applies to the others as well. Remember, exemptions are to be taken literally unless the law creating them allows a liberal interpretation.

The third item:

The Optional Standard Deduction used to be 10% of the gross income and available only to corporations. Now, it has been increased to 40% and made available to individual taxpayers. This now means that a corporation can deduct 40% of its gross income as operating expenses. In case of individuals, the 40% is deductible from gross sales or gross receipts only and not the gross income.