New Year ushers in lower income tax rates
MANILA, Philippines — The New Year will bring good tidings to a majority of Filipino fixed-income earners.
Starting Jan. 1, 2023, individual taxpayers will pay lower income tax rates, but those earning over P8 million annually will have to pay more.
Those with an annual taxable income below P250,000 are still exempt from paying personal income tax.
According to the Bureau of Internal Revenue (BIR), individuals earning purely compensation income, including nonbusiness and nonprofession-related income and single proprietors, will enjoy a higher take-home pay in 2023 as part of the Tax Reform for Acceleration and Inclusion (TRAIN) law, which took effect in 2018.
Compared to the charges in 2018, the new rates would be lower by 5 percentage points for those with an annual taxable income of P250,000 to P2 million, and by 2 percentage points for those with more than P2 million up to P8 million.
Higher take-home pay
On the other hand, those whose taxable income is more than P8 million will pay more—35 percent from 32 percent previously.
“With the said reduction in the annual income tax rates, individuals earning purely compensation income will have lower withholding tax deductions from their monthly salary, thereby increasing their take-home pay,” BIR Commissioner Romeo Lumagui Jr. said in a statement late Friday.
In light of this, employers are directed to use a revised schedule of computation of withholding taxes from the compensation of their employees.
Starting January, employers are to withhold a tax of 15 percent—instead of the current 20 percent—from those with taxable income of more than P20,833 up to P33,332 per month.
Employees receiving P33,333 to P66,666 monthly will make a total tax payment of P1,875, plus 20 percent of their taxable income. This is down from the P2,500 plus 20 percent they were paying from 2018 to 2022.
Those with monthly earnings of P66,667 to P166,666 will pay P8,541.80 plus 25 percent of taxable income. This used to be P10,833.33 plus 30 percent.
Employees getting P166,667 up to P666,666 a month will pay P33,541.33 plus 30 percent of their taxable income, lower than the P40,833.33 plus 32 percent previously.
If you earn more than P666,666, you will pay P183,541.80 plus 35 percent of your taxable income, which is less than the P200,833.33 plus 35-percent tax you paid before.
Nicholas Mapa, senior economist at Dutch banking giant ING Bank, said Filipino households were expected to spend less next year after their “revenge spending” propelled this year’s economic growth beyond what economists had forecast.
The year 2023 “could see households rebuilding savings even after the tax break from TRAIN as inflation stays above target and the negative fallout from multiyear high interest rates finally surfaces,” Mapa said.
Monthly inflation was pegged at 8 percent in November and Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said this could be even higher in December.
With inflation rising persistently throughout this year, the BSP has raised interest rates by 3.5 percentage points from 2 percent to 5.5 percent.
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