(STAR) By Des Ferriols - The Department of Finance (DOF) is looking into the possible extension of a revenue regulation that exempts minimum wage earners from withholding taxation.

The one-year exemption was estimated to have cost the government at least P400 million in foregone revenues but Finance Secretary Margarito B. Teves told reporters that the Finance Department wanted to extend the exemption.

The revenue measure was issued last year and was scheduled to expire unless the DOF determines that it could be extended for another year pending the passage of the law that would exempt minimum wage earners from income tax altogether.

But being exempted from withholding tax payments does not mean that minimum wage earners are completely exempted from income taxes.

The exemption only implies that minimum wage earners will be given the option to pay their annual income tax in bulk directly to the Bureau of Internal Revenue (BIR) at the end of the taxable year on April 15.

"The law already gives minimum wage earners the option of opting out of the withholding taxes, thatís why the exemption would only require a revenue regulation from the BIR," Teves said. "We are just implementing that provision but they still have to pay the tax on their own."

Realistically, however, the DOF said minimum wage earners who have been exempted from withholding tax payments are not likely to actually pay the lump sum amount to the BIR.

"In practice, itís going to be a de facto exemption," said Teves.

"The problem is that there is no law that actually exempts minimum wage earners from income taxes."

At present, the DOF said only about 13 percent of the countryís minimum wage earners are still covered by the tax net.

The majority of minimum wage earners no longer pay the income tax anyway since most of them had qualified deductions that ultimately exempt their net income from taxation.

From this 13 percent, the DOF said the government collects around P445 million every year. The exemption was estimated to have cost the government P400 million in foregone revenues.

"Thatís a significant amount but we can easily absorb that just by tightening the collection of taxes from other sources," said a DOF source. "But the exemption from withholding taxes should not be a long-term measure."

Ultimately, Teves said Congress should enact a law that would exempt minimum wage earners from income taxation altogether rather than looking away when they do not pay their taxes due.

At present, individual income earners with no qualified tax exemptions are taxed at five percent if they are earning less than P10,000 a year. If their income is between P10,000 to P30,000, they are required to pay a basic tax of P500 plus a tax rate of 10 percent of the excess over P10000. Those earning from P30,000 to P70,000 pay a base tax of P2,500 plus 15 percent of the excess over P30,000.

Chief News Editor: Sol Jose Vanzi

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