We got a very interesting question from a reader and Noet Ravalo has answered it in his column today.
I am now 69 years old and still working. But my saving is only P100,000. Will the government continue to impose tax on my saving in the bank? Where is the logic here? — Rose
Most people have mixed feelings about taxes. From an intellectual standpoint, we all know that if the government stops collecting taxes tomorrow, for example, life as we know it will drastically change. But on a personal level, who wants to pay more taxes?
The government, however, collects more taxes from us than many of us think. If you have deposits in the bank and it earns, say, P100 at the end of the year, you will get only P80 credited to your account. You lost P20 to tax on interest earnings.
Deposits in other currencies, say in dollars or yen, are charged the foreign currency deposit unit tax of 7.5%. But if you are an OFW or a foreigner who opened your account here in the country but no longer lives here, make sure you get an exemption from the BIR from the FCDU tax.
I know of a senior couple that owns a small farm in Mindanao. They wanted to open a bank account with a P3,000 cash gift they received recently. Their daughter discouraged them. What for? A deposit like that will earn almost nothing. Assuming they add to it, any interest they will earn, if any at all, will be automatically deducted with a 20% tax.
Since many salaried Filipinos use their bank accounts as an extension of their wallets and hardly check their statements, this tax on interest earnings is almost invisible. If you have savings or checking account statements, you would be surprised at how much you have paid over the course of, say, five years!
Senator Loren Legarda recently sponsored Senate Bill 269 which seeks to exempt senior citizens from the 20% tax on bank savings. Depatment of Finance Secretary Gary Teves said only rich senior citizens would benefit from the proposal because the poor don’t have any savings at all. The DoF also warns that the exemption could be exploited by younger members of the senior citizen’s family.
Unfortunately, it seems that there is no way to know if Teves is right because the Finance department has no official figures on the savings profile of senior citizens. That would be a big help. In the meantime, we all just have to pay our taxes, whether it’s a pleasant experience or not. Click on this link for Noet’s full column on taxes on deposits, and don’t miss the onions!
December 7th, 2007 at 1:04 pm
hi salve, comment lang on the BOI giving tax incentives. I belong to the semicon & electronics industry where PEZA/ BOI gives tax incentives. The electronics industry accounts for over 60% of Phil exports so imagine the number of people employed by this industry! China is a threat bec. they have great tax incentives to investors. If the cost of doing business in the Phils is higher than our neighboring countries, then investors would opt to put up their factories where it is cheaper.
The tax incentives help our people get employment so that in the end, they have something to save in the bank.
December 7th, 2007 at 10:38 am
nina, thats what former PSE president Ernest Leung told me the other day too! :). He’s retired but still as busy as a bee, but he says its ok to pay VAT because he is getting the perks in other things naman. Sounds like a very healthy disposition!
December 7th, 2007 at 10:29 am
don2x, i once heard an economist say that the Philippine legislator has all the good laws, but many of them are not funded and lay to waste.
December 6th, 2007 at 11:57 pm
i happen to read years back that the seniors citizen act was criticized for lack of funding. even bir was not consulted when it was passed.that’s why retail drugstores discriminates seniors who asked for discounts since their profit margins are affected. taxes is supposed to promote equitable distribution of wealth. however bonds that will be used to finance government projects like hospitals, schools, housing should be tax free.
December 6th, 2007 at 3:54 pm
Hi Rene,
You still save 20% from the VAT. Come to think of it, if you are not a senior citizen, you’ll pay the VAT for the whole amount.
:)nina