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).

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 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.

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Essential
Question

What is the importance of minimum wage to

regular Filipino workers?

10
 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.

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 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.

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 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.

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 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

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 Minimum Wage

History of Minimum Wage in the Philippines

● 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

15
 Minimum Wage

History of Minimum Wage in the Philippines

● Republic Act No. 6727

● Through this law, the National Wages and Productivity

Commission (NWPC) and the Tripartite Regional Wages
and Productivity Boards were established.

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 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.

17
 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

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 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

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 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
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 Minimum Wage

Wage Rationalization Act (RA 6727)

States that there
should be different
minimum wage rates
per region for
agricultural and non-
agricultural workers.

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 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.

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 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.

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 Taxes

Taxes are compulsory

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

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 Taxes

Collecting taxes is
necessary, and anybody
who fails to pay mandated
taxes is held accountable
by law.

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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
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 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
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 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

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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

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 Types of Taxes

Income Tax

● Tax on personal income

● Usually levied to employees and entities and is based

on respective profit or income

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 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
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 Types of Taxes

Value-Added Tax

A sales tax levied on the

consumption of the sale of
goods, services, properties,
and imported goods

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Types of Taxes

Compensation
Withholding Tax

Tax withheld by persons

earning taxes solely from
compensation

33
 Types of Taxes

Expanded Withholding Tax

A type of tax prescribed on

certain income payments
and is creditable against the
payee’s income tax

34
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

35
 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

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 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

37
 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
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 TRAIN Law
Comprehensive Tax Reform Program (TRAIN Law)

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 TRAIN Law
Comprehensive Tax Reform Program (TRAIN Law)

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 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.

41
 Benefits of TRAIN Law

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.

42
 Benefits of TRAIN Law

Infrastructure Programs

The government’s current

infrastructure programs target
the creation of major highways,
expressways, and flood control
projects in the next five years.

43
 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.

44
 Concerns under the TRAIN Law

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.

45
Concerns under the TRAIN Law

Increased Poverty Rate

There will be an increase in

poverty among households
because the price increase in
commodities will offset the rise
in income.

46
 Taxes

Tax Computation

Taxable income = Monthly basic pay – (SSS/GSIS +

PhilHealth + Pag-IBIG + other deductions)

47
 Compulsory Contributions in the Philippines

Social Security System (SSS)

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

48
 Compulsory Contributions in the Philippines

Government Service
Insurance System (GSIS)

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

49
 Compulsory Contributions in the Philippines

PhilHealth

It is a government-controlled
corporation that seeks to
provide universal health care
in the Philippines.

50
 Compulsory Contributions in the Philippines

Pag-IBIG

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

51
Discuss how the following factors (population, employment,
and wages) contribute to the increase in commodity pricing.
Arrange them in the most cohesive order.

How does each factor ultimately contribute to the increase in

commodity pricing?

52
Read and answer the questions below:

1. Why does the government need to have a standard

minimum wage per region? Explain the benefits and
problems of having a standard minimum wage per
region.
2. Why do we need to pay our taxes?
3. Is TRAIN law beneficial to Filipino entrepreneurs?

53
 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
54
 Rearrange the letters below to identify what is
Try This!
being described.

2. Aims to minimize the negative effects of

compulsory minimum wages

OTW
ERIEDT
MSTYES
55
 Rearrange the letters below to identify what is
Try This!
being described.
3. Involuntary charges imposed on individuals or
companies and imposed by a government
agency to fund government operations

XASET

56
 Rearrange the letters below to identify what is
Try This!
being described.
4. A tax-exempt federal agency that oversees the
procurement of health coverage and sets
guidelines

HLELHTAHIP

57
 Rearrange the letters below to identify what is
Try This!
being described.
1. One of its goals is to make the Philippine Tax
System faster, fairer and more effective.

NTRIA

58
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.

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 ● Taxes are involuntary charges imposed on
Wrap-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.
60
Challenge
Yourself

Which groups will suffer if the minimum wage

is uniform? Why?

61
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.

62
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.

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