AEC - 12 - Q1 - 0402 - PS - Minimum Wages and Taxes Concerns of Filipino Entrepreneurs

Lesson 4.
Minimum Wages and Taxes

Concerns of Filipino
Entrepreneurs
Applied Economics
General Academic Strand | Accountancy, Business, and Management
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2
In 2015, Anna and Carlo had similar work but in different
locations. Anna works as a secretary at a law firm in
Quezon City while Carlo has the same position in another
law firm located in Bataan. Anna's daily salary is ₱537,
while Carlo's is ₱413.
3
There was a new law that was
implemented to enhance the tax
system in the Philippines called
the Tax Reform for Acceleration
and Inclusion (TRAIN) or
Republic Act No. 10963.
4
The law raises the
minimum taxable
income that helps a lot
of working-class
Filipinos to save more.
5
In order to sufficiently collect
funds for its projects and services,
the government needs to impose
higher taxes on goods and
services.
6
How did the TRAIN law affect
both Anna and Carlo? Is a
difference in their minimum
wage affects their buying
patterns significantly? Why do
they have different minimum
wage rates in the first place?
7
Learning
Competency
Analyze the effects of contemporary issues
such as migration, fluctuation in the exchange
rate, oil price increases, unemployment, peace
and order, etc. on the purchasing power of the
people (ABM_AE12-Ie-h-8).
8
Learning ● Discuss the changes to minimum wage
Objectives rates over time and its effect on workers.
● Discuss the benefits and concerns of the

country’s current tax system.
● Compute for taxable income in the current

TRAIN law.
9
Give Me Your Opinion!
Let’s
Connect
1. Read the article titled “More Filipinos Dragged
into Poverty by Higher Taxes Under TRAIN. ”
2. After reading the article, list down in a table

the positive and negative effects of TRAIN law.
10
Give me your opinion!
Let’s
Connect Pros Cons

11
1. Apart from what was written in the article,
Let’s
provide additional advantages and
Connect disadvantages of the TRAIN law.
12
2. Do you think the TRAIN law is generally
Let’s
beneficial? Why or why not?
Connect
13
3. From your perspective, has the TRAIN law
Let’s
touched on all aspects of consumption and
Connect taxation? Explain your answer.
14
Essential
Question
What is the importance of minimum wage to

regular Filipino workers?
15
Minimum Wage
Minimum wage is the

minimum amount of
compensation that an
employer is required to
pay its workers for work
performed within a
particular time.
16
Minimum Wage
● Minimum wages are intended to protect employees

from unreasonably small wages.
● The minimum salaries can be fixed by a law, through a

regulation of a responsible body, by a wage
commission, by a salary committee, by an industrial or
labor court, or by a tribunal.
17
Minimum Wage
History of Minimum Wage in the Philippines

● Letter of Instructions No. 174, s.1974 (Presidential
Decree No. 390)
● All employers from the private sector, including non-

profit institutions and organizations, are urged to grant
monthly emergency allowances to their employees.
18
Minimum Wage
Enterprise Capital Minimum COLA Amount
Large-scale & ₱1 million to ₱4 million ₱50

medium-scale
Small-scale ₱100,000 to ₱ 1 million ₱30
Micro Less than ₱100,000 ₱15
19
Minimum Wage
● Republic Act No. 6727
● Support the establishment of minimum wages and

encourage productivity improvement
● Guarantees workers' rights to a fair share of the fruits

of production
20
Minimum Wage
● Republic Act No. 6727
● Through this law, the National Wages and Productivity

Commission (NWPC) and the Tripartite Regional Wages
and Productivity Boards were established.
21
Minimum Wage
National Wages and Tripartite Regional
Productivity Wages and Productivity
Commission (NWPC) Boards
Advise the President and Decide by province and

Congress on salaries, sector, the minimum wage
profits, and growth. rates applicable to the
country.
22
Minimum Wage
Criteria for Minimum Wage Fixing
● The demand for living wages

● Wage adjustment vis-à-vis the consumer price index
● The cost of living and changes or increases therein
● The needs of workers and their families
● Improvements in standard of living
23
Minimum Wage
Criteria for Minimum Wage Fixing
● The prevailing wage levels

● Fair returns of the capital invested
● Effects on employment generation and family income
● The equitable distribution of income and wealth
24
Minimum Wage
TIER 1 TIER 2
The minimum wage rate is A voluntary, productivity-

determined by the based pay that is over the
following factors: minimum wage. This pay
● poverty threshold encourages workers and
prevailing wage rates enterprises to become more
● different socio-economic competitive and productive.
indicators 25
Minimum Wage
Wage Rationalization Act (RA 6727)

States that there
should be different
minimum wage rates
per region for
agricultural and non-
agricultural workers.
26
Problems in Different Minimum Wage Rates
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.
● This creates crowding in cities, leaving fewer people in

other small towns.
27
Problems in Different Minimum Wage Rates
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.
28
Taxes
Taxes are compulsory

charges by the
government to fund its
different operations.
These are levied on
individuals, companies,
and the goods people
consume.
29
Types of Taxes
Capital Gains Tax
● Tax levied on earnings that

the purchaser gained from
non-inventory assets
● Earned on the sale, swap, or

other disposals of the
Philippine-based capital
assets 30
Types of Taxes
Documentary Stamp Tax
Tax on papers,
instruments, loan
agreements, and
documentation showing
the approval, assignment,
settlement, or change of a
contract or right
31
Types of Taxes
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
32
Types of Taxes
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
33
Types of Taxes
Income Tax
● Tax on personal income
● Usually levied to employees and entities and is based

on respective profit or income
34
Types of Taxes
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
35
Types of Taxes
Value-Added Tax
A sales tax levied on the

consumption of the sale of
goods, services, properties,
and imported goods
36
Types of Taxes
Compensation
Withholding Tax
Tax withheld by persons

earning taxes solely from
compensation
37
Types of Taxes
Expanded Withholding Tax
A type of tax prescribed on

certain income payments
and is creditable against the
payee’s income tax
38
Types of Taxes
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
39
Types of Taxes
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
40
Types of Taxes
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
41
TRAIN Law
Comprehensive Tax Reform Program (TRAIN Law)
● RA 10963 or Tax Reform for Acceleration and Inclusion

(TRAIN)
● Revision towards a faster, fairer, and more effective

taxation system
● Seeks to increase revenues to support the

government's programs and finance investments
42
Benefits of TRAIN Law
Education
● The government aims to create a more conducive

learning environment that will implement the ideal
teacher-to-student ratio.
● In the next 5 years, taxes can fund 629,120 public

school classrooms or 2,685,101 public school teachers.
43
Healthcare Services
The tax reform aims to build 60,483

rural health units, 484,326 barangay
health stations, or 1,324 provincial
hospitals that are essential to the
improvement of the Philippine
healthcare system.
44
Infrastructure Programs
The government’s current

infrastructure programs target
the creation of major highways,
expressways, and flood control
projects in the next five years.
45
Concerns under the TRAIN Law
Increase in Fuel Prices
● Transportation and logistics businesses may suffer

from high fuel prices.
● These increased costs will be passed onto consumers

through their goods and services.
46
Increased Costs in Labor Transitions
● The shock experienced by some businesses will direct

workers from working in the industries to agriculture.
● Work transition and linking may require additional

infrastructure and other training programs.
47
Increased Poverty Rate
There will be an increase in

poverty among households
because the price increase in
commodities will offset the rise
in income.
48
Taxes
Tax Computation
Taxable income = Monthly basic pay – (SSS/GSIS +

PhilHealth + Pag-IBIG + other deductions)
49
Compulsory Contributions in the Philippines
Social Security System (SSS)
It is a government-run social
institution that caters to
private, professional, and
informal sectors.
50
Government Service
Insurance System (GSIS)
It is a government-run social
institution that caters to the public
sector, including government
employees and uniformed
personnel.
51
PhilHealth
It is a government-controlled
corporation that seeks to
provide universal health care
in the Philippines.
52
Pag-IBIG
It is a state-run social
institution that provides
affordable housing and loan
schemes for Filipinos.
53
Mika, a customer service representative, earns
a monthly income of ₱21,000. She also gets to
Let’s
Calculate receive an additional ₱21,000 through her 13th-
month pay and other benefits.
However, her annual income was deducted by

₱15,166 from her SSS, PhilHealth, and Pag-IBIG
payments.
Compute for her income tax.

54
Solution
Let’s
Calculate Step 1: Compute for the annual basic income.
Annual basic income = Monthly basic
income x 12
Annual basic income = ₱21,000 x 12

Annual basic income = ₱252,000
55
Solution
Let’s
Calculate Step 2: Compute for net taxable income.
Net taxable income= Annual basic
income – deductions
Net taxable income = ₱252,000 – ₱15,166

Net taxable income = ₱236,834
56
Solution
Let’s
Calculate Step 3: Refer to the latest tax rate schedule for
the income tax rate.
Since the annual net taxable income is

below ₱250,000, the income tax rate of
Mika is 0%. This means that Mika does
not have to pay any income tax.
57
Angel is a school librarian at a university. He has
Check Your an annual income of ₱250,000, with an additional
Progress
₱20,000 from his 13th-month pay and other
benefits.
His annual deductions from SSS, Pag-IBIG, and

PhilHealth amount to ₱15,000.
Compute for his income tax.
58
A public school teacher earns a monthly income
Let’s of ₱26,494 and earns the same amount in
Calculate
additional compensation. In a year, the
compulsory annual deduction is around ₱34,185
through GSIS, PhilHealth, and Pag-IBIG.
Determine the income tax due of the public

school teacher.
59
Solution
Let’s
Calculate Step 1: Compute for the annual basic income.
Annual basic income = Monthly basic
income x 12
Annual basic income = ₱26,494 x 12

Annual basic income = ₱317,928
60
Solution
Let’s
Calculate Step 2: Compute for net taxable income.
Net taxable income= Annual basic
income – deductions
Net taxable income = ₱317,928 – ₱34,185

61
Solution
Let’s
According to the latest income tax rate:

From ₱250,000 to ₱400,000 = 20% of
excess over ₱250,000
62
Solution
Let’s
Tax due = (Net taxable income -

₱250,000) x 20%
Tax due = (₱283,743 - ₱250,000) x 20%
Tax due = ₱33,743 x 20%
Tax due = ₱6,748.60
63
Let’s
Calculate Mika’s annual salary is ₱252,000, while her net
taxable Income is ₱236,834. She does not need
to pay any income tax.
64
Let’s
Calculate
The public school teacher’s annual salary is
₱317,928, while his net taxable income is
₱283,743. His income tax rate is 20%, so he
needs to pay ₱6,748.60 annually.
65
A school administrator earns a monthly income
Check Your
Progress
of ₱24,495 and earns the same amount in
additional compensation. In a year, the
compulsory annual deduction is around
₱32,184 through GSIS, PhilHealth, and Pag-IBIG.
Compute for the income tax due.
66
King is an excellent employee who has perfect
Let’s
Calculate attendance with the company. He is earning
around ₱24,000 a month.
Considering deductions from SSS, PhilHealth,

and Pag-IBIG, how much is King’s tax due for the
year?
67
Solution
Let’s
Calculate Step 1: Refer to the SSS contribution table to
look for the amount.
Since King’s monthly income of ₱24,000

is over ₱19,749.99, his contribution as
an employee will be ₱800.
68
Solution
Let’s
Calculate Step 2: Compute for the monthly PhilHealth
premium.
According to the latest report, the

premium rate for PhilHealth members is
at 3%. We will use this as the basis for
calculating the monthly premium for
PhilHealth.
69
Solution
Let’s
Calculate Step 2: Compute for the monthly PhilHealth
premium.
Monthly premium = Basic monthly

income x premium rate
Monthly premium = ₱24,000 x 3%

Monthly premium = ₱720
70
Solution
Let’s
Calculate Step 3: Compute for the Pag-IBIG contribution.
According to the latest report, the

premium rate for PhilHealth members is
at 2%. We will use this as the basis for
calculating the monthly premium for Pag-
IBIG.
71
Solution
Let’s
Calculate Step 3: Compute for the Pag-IBIG contribution.
Monthly Pag-IBIG contribution = Basic

monthly income x 2%
Monthly Pag-IBIG contribution = ₱24,000

x 2%
Monthly Pag-IBIG contribution = ₱480
72
Solution
Let’s
Calculate Step 4: Compute for the annual net taxable
income.
Net taxable income = [Monthly basic pay

– (SSS/GSIS + PhilHealth + Pag-IBIG +
other deductions)] x 12 months
73
Solution
Let’s
Calculate Step 4: Compute for the annual net taxable
income.
Net taxable income = [₱24,000 – (₱800 +

₱720 + ₱480)] x 12
Net taxable income = (₱24,000 – ₱2,000)
x 12
Net taxable income = ₱22,000 x 12
74
Solution
Let’s
the income tax rate and compute for
income tax due.
According to the latest income tax

table, the income tax rate for incomes
₱250,000 to ₱400,000 is 20% in excess
of ₱250,000.
75
Solution
Let’s
the income tax rate and compute for
income tax due.
Tax due = (Net taxable income - ₱250,000)

x 20%
Tax due = (₱264,000 - ₱250,000) x 20%
Tax due = ₱14,000 x 20%
Tax due = ₱2,800
76
Let’s
Calculate
King’s SSS monthly contribution is ₱800,
PhilHealth monthly premium is ₱720, and Pag-
IBIG monthly contribution is ₱480.
His net taxable income is ₱264,000, with an

annual tax of ₱2,800.
77
Check Your
Anna’s monthly salary as a private school
Progress teacher is ₱20,000. She has no record of
absences and tardiness.
Considering deductions from SSS, PhilHealth,

and Pag-IBIG, how much is Anna’s income tax
due for the year?
78
Rearrange the letters below to identify what is
Try This! being described.
1. The minimum amount of compensation
required by an employer to pay wage
earners for work performed within a
particular time
MIUIMMN
AEWG
79
2. Aims to minimize the negative effects of

compulsory minimum wages
OTW
ERIEDT
MSTYES
80
3. Involuntary charges imposed on individuals
or companies and imposed by a
government agency to fund government
operations
XASET
81
4. A tax-exempt federal agency that oversees
the procurement of health coverage and
sets guidelines
HLELHTAHIP
82
1. One of its goals is to make the Philippine
Tax System faster, fairer and more effective.
NTRIA
83
Wrap-
Up ● Minimum wages are characterized as the
minimum amount of compensation required by
an employer to pay wage earners for work
performed within a particular time, and cannot
be decreased by a negotiated agreement or by
an individual contract.
84
Wrap- ● Taxes are involuntary charges imposed on
Up individuals or companies and imposed by a
government agency to fund government
operations, whether local, regional or national.
● The goal of the Tax Reform for Acceleration and

Inclusion (TRAIN) is to make the Philippine Tax
System faster, fairer, and more effective in
encouraging employment, generating employment,
and decreasing poverty.
85
Challenge
Yourself
Which groups will suffer if the minimum wage

is uniform? Why?
86
Bibliography
Balitao, Bernard R., Martiniano D. Buising, Edward D.J. Garcia, Apollo D. De Guzman, Juanito L. Lumibao Jr., Alex P.
Mateo, and Irene J. Mondejar. Ekonomiks Araling Panlipunan Modyul para sa Mag-aaral. Pasig City: Vibal Group
Inc., 2015.
Cordero, John Ted. “Proposed Wage Hike Will Benefit Only 16% of PHL Workforce -ECOP.” GMA Network, September
24, 2016.
https://www.gmanetwork.com/news/money/economy/582555/proposed-wage-hike-will-benefit-only-16-of-phl-
workforce-ecop/story/
.
Greenlaw, Steven A. and David Shapiro. Principles of Economics 2e. Houston, Texas: OpenStax, 2017.
Kagan, Julia. “Income Tax Terms and Guide: Taxes.” Investopedia. 2020.
https://www.investopedia.com/terms/t/taxes.asp.
87
Bibliography
National Wages and Productivity Commission. “Socio-Economic Profile.” Department of Labor and Employment
National Wages and Productivity Commission. September 2019.
https://nwpc.dole.gov.ph/publications/socio-economic-profile-september-2019/.
Official Gazette. “Letter of Instructions No. 174, s. 1974.” March 6, 1974.

https://www.officialgazette.gov.ph/1974/03/06/letter-of-instructions-no-174-s-1974/.
Official Gazette. “How is Minimum Wage Determined?” 2012.

https://www.officialgazette.gov.ph/featured/how-is-minimum-wage-determined/.
Tullao, Tereso Jr. S. Applied Economics for a Progressive Philippines. Quezon City: Phoenix Publishing House, 2016.
88

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Lesson 4.

Minimum Wages and Taxes

● Discuss the benefits and concerns of the

● Compute for taxable income in the current

2. After reading the article, list down in a table

What is the importance of minimum wage to

Minimum wage is the

● Minimum wages are intended to protect employees

● The minimum salaries can be fixed by a law, through a

History of Minimum Wage in the Philippines

● All employers from the private sector, including non-

Enterprise Capital Minimum COLA Amount

Large-scale & ₱1 million to ₱4 million ₱50

Small-scale ₱100,000 to ₱ 1 million ₱30

Micro Less than ₱100,000 ₱15

History of Minimum Wage in the Philippines

● Republic Act No. 6727

● Support the establishment of minimum wages and

● Guarantees workers' rights to a fair share of the fruits

History of Minimum Wage in the Philippines

● Republic Act No. 6727

● Through this law, the National Wages and Productivity

Advise the President and Decide by province and

Criteria for Minimum Wage Fixing

● The demand for living wages

Criteria for Minimum Wage Fixing

● The prevailing wage levels

The minimum wage rate is A voluntary, productivity-

Wage Rationalization Act (RA 6727)

Migration to Urban Areas

● High minimum wage rates in urban areas can create an

● This creates crowding in cities, leaving fewer people in

Fewer Businesses in Other Regions

● A higher minimum wage rate attracts not only job

● Big businesses would rather be located in a big city

Taxes are compulsory

● Tax levied on earnings that

● Earned on the sale, swap, or

Tax on a donation or gift and is

Tax on the right of a deceased

● Tax on personal income

● Usually levied to employees and entities and is based

Corporate tax levied on individuals

A sales tax levied on the

Tax withheld by persons

A type of tax prescribed on

Final Withholding Tax

A type of withholding tax that is

Government Money Payments Withholding Tax

A kind of tax withheld by National Government Agencies

● Tax levied on the production, distribution, or use of a

● Goods that are manufactured or produced for

● RA 10963 or Tax Reform for Acceleration and Inclusion

● Revision towards a faster, fairer, and more effective

● Seeks to increase revenues to support the

● The government aims to create a more conducive

● In the next 5 years, taxes can fund 629,120 public