Press Releases

On the approval of tax provisions of corporate pension reform

May 5th, 2021

Salceda approves tax provisions of corporate pension reform, will support enhancements to address industry, labor concerns

House Ways and Means Committee Chair Joey Sarte Salceda (Albay, 2nd district) says he will provide key inputs for the proposed reform of the Department of Finance (DOF) for corporate pensions, as the House Committee on Ways and Means moved to approve yesterday the tax provisions of the unnumbered substitute bill to House Bill No. 8938, or the Capital Market Development Act (CMDA), during the regular meeting of the House tax panel.

Salceda said that he will work with the DOF and the originating committee, the Committee on Banks and Financial Intermediaries, to improve the bill.

“My comments are primarily on the viability of making these impositions on business and on workers, given lower incomes due to COVID-19. That is the key consideration. Once we figure out how to address that and a few other pending issues, I will help defend an enhanced version,” Salceda said.

“I already approved the tax provisions since they were typical with pension plans. The concerns are outside the Ways and Means jurisdiction, though, so I will work with the other committees,” Salceda added.

During the tax panel meeting, Salceda moved to have the bill approved without amendment, saying that he will instead work with the House Committee on Banks and Financial Intermediaries, the House Committee on Rules, and the Capital Market Development Council Chair Carlos G. Dominguez to ensure that the bill is passed by the House “in a manner that maximizes benefits to workers without burdening businesses too heavily.”

“We are looking for the Goldilocks spot on contribution rates. I am heavily considering the fact that businesses are still struggling with the COVID-19 pandemic. At the same time, current private pension plans are extremely inadequate for decent old age, and if we don’t do this reform soon, young workers won’t have any good retirement plan to look forward to,” Salceda said.

The bill proposes the establishment of an employee pension and retirement income (EPRI) account from the proposed private retirement and pension system that is fully-funded and portable. The EPRI account shall be a permanent account until retirement, owned, maintained, and managed by the employee, regardless of changes or transfer in employment. As a private pension system, the EPRI owner shall make all investment decisions pertaining to his EPRI assets.

EPRI shall be compulsory to cover all employees and employers in the private sector, while self-employed and professionals may opt for its voluntary coverage.

Salceda says they will still have to determine the appropriate rates of contribution, given industry and labor concerns. Under the current version, employers will pay 4% of worker salary and the worker, 1% of their salary to the pension plan. Micro, small, and medium enterprises (MSMEs) will only pay 2% of worker salary, while very small businesses with under three workers will be exempt.

The measure also provides tax exemptions measures on:
Contributions – Employer’s contribution made to the EPRI shall be allowed as a deductible expense of the employer. Counterpart employee contribution shall be subject to the necessary income tax.
Investment income – All income of whatever nature earned by the EPRI, including interest and gains earned from the placements or investment of the EPRI assets, shall be exempt from all taxes. In case of transactions subject to the documentary stamp tax (DST), the DST shall be borne by the other party who is not exempt.
Benefits – All benefits and distribution received by the employee at the time of vesting or retirement shall be exempt from all taxes.

“Our pension system in general is in serious need of overhaul. That is why I support the efforts to reform it. But we need to get the reforms right,” Salceda said.

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