The Philippines has the second-lowest household and per-capita income in the Association of Southeast Asian Nations (Asean), according to the latest global poll results released by Washington-based research group Gallup; and yet, our country has the highest individual income tax rate in the region.
Isn’t that ironic?
The Gallup poll showed that the Philippines’s median household income is pegged at $2,401 and translates to a median per-capita income of $451 annually.
The country with the highest median household income in Asean is Singapore, with $32,360 or a per-capita income of $7,345 a year.
And yet Singaporeans even with their much higher incomes pay lower taxes than we do.
A position paper submitted by the Tax Management Association of the Philippines (TMAP) to Congress, which was reported by ABS-CBN news recently, showed that a Filipino worker earning a little over P500,000 a year is taxed 32 percent while a worker earning an equivalent P500,000 in Singapore pays only 2 percent income tax.
The Thai counterpart earning the equivalent income is only taxed 10 percent. In Malaysia, he would be taxed only 11 percent. In Brunei, workers who earn “only” P500,000 do not have to pay any income taxes.
It doesn’t take a genius to deduce what happens when you charge high taxes on low incomes: Hardly any money is left for the poor working class.
This is the reason why poverty remains a persistent problem despite the Philippine economy performing well over the last few years.
This is why most workers don’t have savings and can barely keep up with the cost of living in this country.
I’ve devoted the last few articles to pointing out that Filipino workers are quite unfairly shouldering most of the tax burdens in this country and that we should support measures in Congress that are intended to lower income taxes.
TMAP President Rina Manuel said it’s really time to lower the tax bracket to make it equitable.
She said corporations are only subjected to 30 percent tax rate while individuals are taxed 32 percent. And corporations, she noted, enjoy several deductions and perks while employees only have personal exemptions, like those with the children.
World Bank Philippines senior country economist Karl Kendrick T. Chua recommended that the government should have a 25-percent income tax cap.
Chua noted that the Philippine tax base is quite narrow because the government has been giving billions of incentives to companies that do not need them. In this way, he said the current tax system favors big business since the tax burden of small firms is significant.
He said incentives should not be given outright to firms. They should earn their incentives based on performance and employment generation.
He also noted that under the current income tax rate of 30 percent to 32 percent for all taxpayers, around 50 percent of the employed are burdened with over 90 percent of personal income-tax revenues.
This was confirmed by another study, this time by local think tank IBON Foundation, who said the increase in the government’s revenue collection over the last four years mostly came from individual taxpayers, especially the working class.
According to IBON Foundation’s research, from 2010 to 2013, the average growth of individual income taxes is 18 percent compared to the average growth of corporate income taxes, which is only 13.3 percent.
Since 2010, revenue collection has steadily increased annually by about P150 billion from the collections registered during the previous year.
Again, it doesn’t take a genius to conclude who is shouldering most of the burden.
Indeed, in 2013, the share of individual income taxes to total revenues is 18.7 percent, while corporate income taxes only made up 12.9 percent of the total revenues.
IBON noted that the collection of the value-added tax (VAT) is also growing faster than corporate income taxes. VAT revenues also come from the poor and middle-class families who make up most of the population and are, therefore, the drivers of consumption.
Why is it that those with the capacity to pay, such as corporations and high-income individuals, pay less than most of the working class who hardly have anything left after taxes?
And again, what do our workers get in return for the taxes they pay government? Can they send their kids to public schools and go to public hospitals, assured that they would get the best services for free? Can the government assure their safety in their homes and on the streets? Can the government be relied upon to take care of them if they lose their jobs or once they are old and can no longer work? Do we get traffic- and flood-free, safe and efficient roads?
I could go on but you get the point.
We have a word for this in Filipino: “Lugi.”