Balmori Software is pleased to announce that, since October 07, 2008, SURE! PayMaster (Version 7.2) is now compliant with R.A. 9504. Many of our users have upgraded to Version 7.2 since then; but some remain uncertain about what R.A. 9504 means for them. This article addresses the questions that continue to be raised frequently by our users, including some who have already upgraded to Version 7.2.

1) What changes has R.A. 9504 wrought on the payroll preparation task?

In broad brush strokes, R. A. 9504 makes the following innovations: a) It exempts minimum wage earners from income tax and withholding tax;  and b) it increases tax exemptions for all taxpayers, (whether they be minimum wage earners or earning more than the minimum wage).

2) Can the new payroll rules implied by R.A. 9504 be addressed by simply updating the Withholding Tax Tables in my old, pre-Ver. 7.2, SURE! PayMaster?

Regrettably, emphatically, no. To be very clear: the requirements of R.A. 9504 are properly addressed by (a) updating the Withholding Tax tables (you are therefore partly right there), but in addition, by (b) reprogramming  algorithms in the main payroll application itself. (Algorithms are the  mathematical operations, classification rules, and logical rules within any software program.)

Examples of algorithm changes required by RA 9504: Minimum wage earners are now completely exempt from withholding and income taxes.  Another algorithm change: the traditional taxpayer categories have been revised. For example, there is no longer any such  thing as Head of Family under RA 9504 provisions.

The diligent analyst can appreciate the magnitude of the changes to the tax computation  algorithms  by reading pages 10 to 24 of the BIR's Revenue Regulations 10-2008. These 15 pages lay down the new tax computation specifications  that payroll supervisors – and payroll software programs  -  have to observe to be compliant with RA 9504. (Download a copy of RR 10-2008 from the following link: www://www.balmorisoftware.com/downloadables/ra9504/rrno10-2008.pdf)

To recap: R.A. 9504's changes mean that (a) yes, the Withholding Tax Tables do indeed change, but in addition, (b) the algorithms within the SURE! PayMaster program itself also change. The algorithm  changes are so significant that in effect all versions of SURE! PayMaster lower than 7.2 are going to produce “wrong” results, in the context of R.A. 9504; they are obsolete as you read this.
This set of circumstances also holds true for all other software vendors participating in the Philippine payroll automation market.

3) I keep hearing that 2008 is a “transitional year” as far as R.A. 9504 is concerned. What does that mean for me?

You are correct that 2008 is a transitional year for taxpayers. What this means is that 2008 is the year we all trail off on observing the taxation rules under the old law (RA 8424 of 1998), and it's the year we all ease into the taxation rules under RA 9504. What this implies is that computing taxes will be especially complicated in 2008, because the first half of 2008 gets computed under the old law, while the second half gets computed under the new law.

And this all flows from a hard fact of life: the BIR isn't going to give us a single millimeter more of tax liberalization than R.A. 9504 obliges it to. The BIR is a creature designed to extract taxes, not sign it away. And since Congress passed the law only in June, and the law only took effect in July, the BIR (predictably) takes the position that the first half of 2008 is subject to the taxation algorithms of the old law (R.A. 8424), while the second half  is subject to the more liberal algorithms of the new law, R.A. 9504.

The important thing for Balmori clients to keep in mind is that SURE!PayMaster Version 7.2 will execute the necessary tax computations during even this transitional year of 2008. Therefore, having Version 7.2 makes life simple for payroll supervisors (and their relevant public their employees) by handling the transitional computations of this unique transitional year 2008, entirely automatically.

In 2009, life will be simpler: all payroll tax calculations will apply R.A. 9504 rules across the board, with no more pro-rating complications to grapple with. Which begs another question...

4)  ...In 2009, the first year in which R.A.9504 will apply exclusively, will Balmori Software require me to upgrade my SURE! PayMaster once again?

We are happy to reply that the answer is no. SURE! PayMaster Version 7.2 will compute taxes correctly in compliance with R.A. 9504 in the transitional year 2008, and in 2009 and beyond without need for modification (unless the BIR, PHIC, HDMF, or SSS promulgate more rules changes).

Further happy news: because we already know what the 2009 Withholding Tax tables will look like, holders of SURE! PayMaster Ver. 7.2 licenses shall get the 2009 Withholding Tax tables at no charge. (In fact, the 2009 tables are already incorporated in our deliverables in Ver. 7.2. When the proper time comes, we will send instructions to all users on how to activate the 2009 Withholding Tax tables.)

Which begs another question....

5)  ...Tell me why I should upgrade to Version 7.2 now instead of waiting until January 2009.

Here's the chain of reasoning: Because RA 9504 is supposed to have taken effect starting July 6, 2008, but the implementation guidelines ( RR 10-2008) emerged only in October 2008, every employer in this country has therefore been over-withholding from their employees for the period July 6 up to at least the dissemination date of RR 10-2008. The moment you do a tax annualization procedure, many of your employees will likely be looking at  significant refunds, as a result of all that over-withholding since July.

Guess who gets  to finance these refunds? That's right: the employer. You get to act as a bridge financier on behalf of the BIR, which is the entity that by rights ought to be kicking back those refunds.  (You do get to “get back” your money in the form of future tax credits; but in the meantime, you're out of pocket.)

So, why should you upgrade to Version 7.2 now rather than wait until January 2009? You should upgrade asap, in order that you can perform tax annualization asap, in order to minimize the refund that you'll need to pay back to your employees as a result of RA 9504 kicking in.

6) R.A. 9504 sounds like a really good deal for taxpayers. Is there a catch?

Prudent of you to ask. Yes, there is at least one big catch. In the messy real world, a minimum wage earner can conceivably have other documented income over and above his minimum-wage payslip at his primary place of employment. Let's see... consulting fee income? Talent fees from Wowowee? Part-time lecturing at the College of Our Lady of Perpetual Motion? If an otherwise minimum-wage worker finds himself in this situation (better than a poke in the eye with a sharp stick, as they say), then, alas, he will be subject to income tax after all.  There are a handful of similar ifs and buts in pages 1 to 10, and 25 and up, of Revenue Regulations 10-2008. Read them with great care.

Another catch, this time one that might trip up payroll supervisors in particular: the definition of minimum ] wage is tricky; it changes depending on what geographic region you happen to be in the country. So, what is minimum wage for Metro Manila might be a prince's ransom  in, say, western Mindanao (OK, maybe a poodle's ransom).  

What this all means is, a lot fewer people in RP will qualify as minimum-wage earners than originally thought they would. RSR

                                                                                                                                                                                         

Questions? Reactions? Write to balmori@balmorisoftware.com.  

 

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