Lesson 5 - Minimum Wages and Taxes Concerns of Filipino Entrepreneurs

Minimum wages

• protect workers from unreasonably low pay.

Criteria for Minimum Wage Fixing

• Prevailing Wage Levels: Standards based on current wage practices.

• Fair Returns on Capital: Ensuring investor profitability.

• Employment Effects: Influence on job creation and family incomes.

• Equitable Distribution: Focused on wealth and income equity.

Wage Rationalization Act (RA 6727)

• Implements region-specific minimum wage rates distinguishing between agricultural and non-agricultural sectors.

Problems Associated with Different Minimum Wage Rates

• Migration to Urban Areas

• Fewer Businesses in Other Regions

• Taxes Defined

Migration to Urban Areas

• High minimum wage rates in urban areas can create an influx of job seekers from neighboring cities who are seeking opportunities to have a higher paying job.

Fewer Businesses in Other Regions

• A higher minimum wage rate attracts not only job seekers but also business owners.

• Big businesses would rather be located in a big city where many people are working and earning than be in other regional municipalities with fewer people.

Taxes

• are compulsory charges by the government to fund its different operations. These are levied on individuals, companies, and the goods people consume.

Capital Gains Tax

• Tax levied on earnings that the purchaser gained from noninventory assets

• Earned on the sale, swap, or other disposals of the Philippinebased capital assets

Documentary Stamp Tax

• Tax on papers, instruments, loan agreements, and documentation showing the approval, assignment, settlement, or change of a contract or right

Donor’s Tax

Tax on a donation or gift and is imposed on the free transfer of property between two or more persons living at the time of the transfer

Estate Tax

Tax on the right of a deceased person to transfer their estate at the time of death to their rightful heirs and recipients

Income Tax

Tax on personal income

Usually levied to employees and entities and is based on respective profit or income

Percentage Tax

Corporate tax levied on individuals or companies selling or leasing goods, property, or services in the context of a transaction whose total annual profits or receipts are not more than ₱550,000 and not subject to VAT

Value-Added Tax

A sales tax levied on the consumption of the sale of goods, services, properties, and imported goods

Compensation Withholding Tax

Tax withheld by persons earning taxes solely from compensation

Expanded Withholding Tax

A type of tax prescribed on certain income payments and is creditable against the payee’s income tax

Final Withholding Tax

A type of withholding tax that is considered as the full and final payment of the income tax due of the payee

Government Money Payments Withholding Tax

A kind of tax withheld by National Government Agencies (NGAs), government-controlled and owned corporations (GOCCs), and local government units (LGUs) before payment is made to non-VAT registered entities

Excise Tax

• Tax levied on the production, distribution, or use of a good in a country

• Goods that are manufactured or produced for domestic sale, use, or imports

Tax Computation

Taxable income = Monthly basic pay – (SSS/GSIS + PhilHealth + Pag-IBIG + other deductions)

Social Security System (SSS)

It is a government-run social institution that caters to private, professional, and informal sectors.

Government Service Insurance System (GSIS)

It is a government-run social institution that caters to the public sector, including government employees and uniformed personnel.

PhilHealth

It is a governmentcontrolled corporation that seeks to provide universal health care in the Philippines.

Pag-IBIG

It is a state-run social institution that provides affordable housing and loan schemes for Filipinos.