Aquino is absolutely, unequivocally wrong on taxes

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EVEN though we heard the statement, listened several times to the recording of it made by our reporter, and read the words in print in our own and several other newspapers, we are still having a hard time believing any government official anywhere, let alone the president of a nation of 100 million people, could say something as abysmally stupid as what President BS Aquino 3rd offered in explanation for rejecting any consideration of the new tax proposals supported by a majority of the Legislature and the public.

What is being proposed, to describe it in as simply as possible, is to reduce the personal income tax rate by adjusting the tax brackets, lowering the highest percentage (which now stands at 32 percent), raising the lowest bracket from five percent to nine percent, and raising the tax-exempt level of income from its virtually-irrelevant current level of P10,000 per year to a more reasonable P180,000 per year. To compensate for an assumed reduction in revenues from income taxes, the Value-Added Tax (VAT) could either be raised from its current 12 percent to 14 or 15 percent, expanded to cover goods and services that are currently VAT-exempt, or some combination of both.

As to the matter of reducing income taxes, Aquino said, “The question is, if we reduce income taxes, our revenue will also go down and our deficit will grow. Will the increase in deficit become a negative factor when credit rating agencies rate us?” To the suggestion that VAT could be increased in some way, he responded, “Taxes like the VAT affects everybody regardless of economic status or level in society. That’s not what the Constitution is saying that we should adopt a policy of progressive taxation.”

As our own and others’ analysis has repeatedly explained, a change to a gross-income tax scheme simplifies tax collection; as the Bureau of Internal Revenue under Aquino has demonstrated its inability to efficiently collect taxes under the current convoluted scheme, this proposal is an obvious solution to the real problem – which is not, as Aquino and his BIR chief Kim Henares believe, a matter of not enough taxes being levied, but a matter of properly collecting the taxes due.


And while it is technically accurate to describe VAT as a regressive tax (i.e., one whose functional percentage is inversely proportional to income), it is more fair than an income tax – provided lower-income taxpayers are protected by making basic necessities exempt from VAT – because it is an optional tax. Taxpayers have the choice to be taxed or not, depending on their spending, and as higher-income taxpayers tend to spend more, the regressive nature of VAT is largely canceled out.

Furthermore, a president who has refused to consider reductions in VAT several times during his tenure has no personality to hold forth on its “regressive” nature.

President Aquino, you have mocked the country long enough by referring to us as “your bosses,” and then promptly ignoring or dismissing every demand or suggestion for better governance and improved economic circumstances “your bosses” have ever made. We want the tax system updated, period. If you cannot do the job “your bosses” demand, then stop wasting our time and step aside for someone who will.

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17 Comments

  1. Oscar needs to shut his mouth, or more appropriately here, his posting device.
    Maling mali mga analysis mo.
    Lalo na yung statement mo na the middle class makes 140,000.00 a year!
    Minimum wage ng single salary yan

  2. @Oscar Plameras: With respect sir, you need to study the economics of tax cuts – the money will go back into the economy and generate tax revenue elsewhere. Its called the multiplier effect.

    If I earn an extra hundred pesos (because of the tax cut) – I spend it buying something from you (the government gets VAT). You have a extra income from me of say P86 (P100 less VAT). You spend that. Someone else has income of over P70 (your P86 less VAT). And so on. All these extra people are happy to have a bit more money to spend, and the government still gets it tax revenue back.

    This example is an over simplification. But the lesson is clear.

    Moreover, remember that a cut in one place can be replace by a matching increase elsewhere. The richest 300 families get richer every year. Let them pay a tiny bit more tax – it won’t affect their life style, and it will probably make them richer (see my other post in this thread).

    • It depends upon who gets the tax breaks and by how much.

      If you were paying attention, the proponents of tax cut want to decrease the max tax rate from 32% to around 16% around. This is despite the reality that Filipinos pay one of the lowest personal tax per capita.

      The beneficiaries are not the middle income families because middle income families earn an average of P140,000 per year.

      The major beneficiaries are those earning P500,000 plus per year which represents less than 10 percent of the total tax payers.

      So, this idea that decreasing tax per capita will increase GDP is fallacious.

  3. It has been proven by example, time-and-time again, in countries all around the world, that a sensible reduction in the tax rate for lower income earners has a positive economic effect.

    Minimum wage earners and middle income families spend what they earn – the increase in their earning (from lower taxation) will immediately go back into the economy in basic spending on items such as better quality food, housing, education, leisure, etc. The economy will benefit. Tycoons will earn more.

    If necessary, taxes on billionaire company owners could be increased by a minuscule amount to recover the government revenue lost by low-end tax cuts.

    Of course, the President would be concerned that his cronies would object to paying even slightly higher taxes. He could explain the arithmetic to them. It is like this:

    Imagine for a moment that Henry Sy’s tax is increased by P3m a year. He has to sell one more condo to recover that. But Jose Public feels better off because of the tax cuts and finally buys a condo using his savings for the down payment, with repayments over 20 years. His annual outlay from his income (simplifying) is one-twentieth of the cost of the condo. So the tax taken from Henry Sy could finance 20 extra condo sales. And his bank could also benefit from giving more loans.

    What’s is better for Henry? Keep the value of one condo (which is completely insignificant to him)? Or sacrifice it to tax cuts and sell 20 condos? And watch the economy grow … And see higher and higher demand for condos every year (and a lot more spending in SM Malls).

    Don’t the President and his advisers have even the slightest grasp of economics? It makes me weep.

    • You cut taxes for a reason.

      You don’t cut taxes because tax per capita in the Philippines is one of the lowest in the world.

  4. B Aquino was quoted as follows: “The question is, if we reduce income taxes, our revenue will also go down and our deficit will grow. Will the increase in deficit become a negative factor when credit rating agencies rate us?”

    B Aquino is right.

    1. Our budget is still in deficits even though the deficit is decreasing as percent of GDP.
    2. If we reduce taxes now our deficits will blow up and we have to borrow much more to cover the deficits.
    3. If we borrow more and owe more our interest payment is higher and we have to borrow more to pay for this interest alone.

    It is a very bad idea to change the tax rate because it will reduce tax revenues and increase our debt.

    For example, in 2010,
    1. the Philippine Government spent a total of ₱1.5 trillion
    2. total earnings of ₱1.2 trillion from tax and non-tax revenues,
    3. deficit of ₱314.5 billion.

    Government borrowed P351 billion to cover the deficit as follows,

    /Description /Domestic Sources /External Sources /Total
    /Gross Borrowing /₱489 billion /₱257 billion /P746 billIon
    /Less: Repay/Amort /₱271 billion /₱124 billion /P395 billion
    /Net Borrowing /₱218 billion /₱133 billion /P351 billion
    /Total Borrowing /₱351 billion

    Every year the government borrows money to repay some outstanding debts and cover the year’s deficit.

    This will continue until the budget is returned to balance or surplus.

    That’s why B Aquino is right not to change the tax table to reduce tax.

  5. The country was ruined because of this President. The worst our country has had. He’s stance on many issues clearly shows that he is not for the welfare of the majority Filipino people. He has rewarded his friends by positioning them to various offices and has turned down every bill that supposedly help the Filipino people in general to gain from the so-called economic boom. The Filipino people should use their votes to wield against the LP candidates to show their disgust. Of course, we need to watch closely COMELEC with with PCOS (hokus pokus). At this early on, I could tell that if Mar wins, nandaya sila with the help of COMELEC given the performance of PNoy na pahirap sa mga OFWs, mga manggagawa at pati mga professionals sa ating bansa. Only the fools will vote of the protege of a heartless President like PNoy.

    • Your claim that our country is ruined is absolutely false. As a matter of fact, various evidence indicates that our country has advanced its competitive positions in 10 out of 11 indicators, namely:

      1. External debt has decreased by 3 positions
      2. Human development has increased by 1 position
      3. Global competitiveness has increased by 6 positions (very significant increase)
      4. Economic freedom increased by 5 positions
      5. Travel and Tourism competitiveness increased by 8 (extremely significant)
      6. Global enabling trade increased by 8 (extremely significant)
      7. Ease of doing business increased by 13 (that’s extremely significant)
      8. Corruption perception index increased by 9, meaning less corrupt than before by 9 points
      9. Index of economic freedom increased by 8.
      10. Press freedom increased by 6.
      11. Global peace index decreased by 5.

  6. if it’s impossible to lower the income tax on individuals, then the best solution would be to lower the number of thieves in the government!

  7. Philippine President Aquino rejected labor groups’ Security of Tenure bill allowing for workers to be permanently hired and position themselves to get their fair share of the economic gains. He also rejected labor group proposals to create a task force that will make electricity rates in the country affordable to working people. He also rejected labor group proposal to institutionalize 2-month unemployment insurance that would provide workers who lost their jobs to support them while looking for a job. He also rejected labor grup proposal to support low-paid workers with a 2,000 peso monthly discount card in purchasing food, medicines and tuition fees. Despite vehement labor group opposition, he also removed government subsidy to the MRT and LRT fare system leaving thousands of workers to pay more for a very dangerous and very inconvenient mass transport system. AND now, he rejected proposal to lower income tax of millions of workers in the private and public sectors. What then is your counter-proposal Mr. President to protect workers from growing inflation and lack of government services?

  8. There used to be a time when the government served us and not the other way around. Why are we letting government run our lives?.

    If government was really doing its job, why then are we in a P6.2 trillion hole?. There is no excuse.

    The bigger the government, the bigger the waste, and the more it will tax its citizens.

    Other than reducing the size of government, we have to reduce our spending; spend wisely. Have a plan to gradually cut our subsidies; but government has to allow the market to freely help itself. The most government should do is to support it not dictate or come up with bird-brain restrictions. Government should also eliminate or gradually reduce entitlement/doleout programs. Do we really want to create a nation of beggars?. We should also stop political/populist programs that have perennially sucked in tremendous amounts of money and has cost us trillions in lost opportunities like our agrarian reform programs. We should also should give federalism a try; when other areas of our country are developed or enjoy the same opportunities manila has, why go to Manila and add to the traffic mess?. It will help declog Manila. If ever there is something that we should focus on is quality education. Our ed. systems is old and regressive so focused on developing new employees; its time it focuses on creating entrepreneurs. Etc…

  9. After the oppressive sin taxes which basically hits one and all, assuming that the tobacco and beer,wine industries pay proper taxes, the over P 50B raised should have covered the improvement of take-home pay !
    Next or instead, they could remove VAT from utilities, gas, water and electricity !
    They should also fund the increase in SSS pensions as the lowest pensioners must even be covered by the PPP, get the funds from the DSWD, Department of Savings(sayang interest ng Bangko) and Wasted Deliverables (relief goods expired ) !

  10. This article is good, appropriate and relevant to the current issue. But sad to say, this cannot be understood by a fool in the malacanang. Kahit anong explanation, salita, pakiusap o utos ang gawin mo sa isang sira-ulo ay hindi ka pa rin maiintindihan. Meron kasi silang sariling mundo.

  11. Can this moron do anything right? I have stop counting his idiotic faults starting from mishandling the luneta hostage disaster very early in his term to the latest attempt to wiggle out of his complicity to the mamasapano massacre and now to his, again, idiotic stance on improving the tax system. He is afraid of a negative reaction of credit ratings he says to justify his thumbing down the tax reduction of income! To begin with there are no credit ratings to protect that are so important this moron’s sense of proportions is totally outrageous and secondly how can he not see that the tax reduction is only part of a scheme which in the end will not result in a deficit but will in fact promote progressive taxation. Alas this moron is beyond redemption and it is with much longing anticipation that his term is soon expiring.

    • Evelyn Tabungao on

      I suggest that you read the article over and over again, over several days if needed, so you can get at least a gist of the answer to your question here.

      The answer is in the article.

    • You mean spending wants of his people? Tanggalin kaya ang pork para makatipid ay may magamit pagawa mas marami silid aralan.