REDUCING income tax rates or lowering the tax brackets is surely a popular issue to voters, but why are most candidates apparently avoiding it?
They probably find it too complex to understand, or they simply don’t want to kill the goose that lays the golden eggs, so to speak.
During the first of a three-part presidential debate on February 21 in Cagayan de Oro City, Senator Miriam Defensor-Santiago wondered aloud how her rivals in the May 9 presidential elections would raise the money to fund the projects and programs they promise to undertake once elected?
The national government’s annual budget gets funding largely from the tax revenues collected by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).
Whatever the government does, including the distribution of dole out to prospective voters and largesse to political protégés, a large sum of it is from taxes collected from individuals and businesses.
In short, it is necessary for the government to raise as much tax as it can to be able to implement more projects, deliver more services to citizens, and, yes, grant salary increases to its officials and employees, including those who spend working hours cutting nails, playing video games and the like.
Of the five presidential candidates, only Defensor-Santiago has laid down a detailed program to reform the tax system. Among her programs is to adopt a comprehensive income taxation and reduce the maximum personal income tax rate from 32 percent to 25 percent.
The seven-percentage point reduction would be a significant amount particularly for low- to middle-income workers. To put it simply, one would just have a P25 tax deduction instead of P32 for every P100 income.
The standard bearer of the People’s Reform Party (PRP) also proposes to reduce the corporate income tax (CIT) rate from 30 percent to 25 percent, rationalize fiscal incentives to partly offset the revenue loss from lowering the CIT rate, impose a national real property tax (RPT) piggybacked on local RPT, abolish the estate tax and tax on dividends, and gradually raise the value-added tax rate from 12 to 15 percent by 2019.
Senator Grace Poe’s program was put simply as cutting taxes to be on par with competing destinations in the region.
The Aquino Administration has been reluctant to adopt proposals in Congress for lowering income taxes because it was seemingly afraid to incur wider budget deficits if the foregone revenues would not be filled from less burdensome alternative sources.
While revenue collection has been increasing over the years, the tax leakages remain so huge. Efforts to file cases against tax evaders may have yielded positive results in terms of increased collection, but many are still not paying the correct amount of taxes.
During the 3rd Business Forum hosted by The Manila Times on February 23 at the New World Manila Bay Hotel, Ma. Victoria Espano, chairman and chief executive officer of Punongbayan & Araullo, said a comprehensive review of the present tax system is necessary to harmonize tax and investment policies in order to attract more investments to further fuel the economy.
“Congress and the executive department must work together and involve citizen groups who represent taxpayers’ interest,” Espano suggested. “Through the conduct of a serious dialogue among the parties concerned, an acceptable comprehensive tax structure can be developed that will promote successfully the interest of the country and its people.”
“Comprehensive tax reforms need several years to take charge and implement. That is why we need to start with this process—now!” said Espano, who once served as chief of the Senate Tax Study and Research Office before joining the country’s leading audit, tax, advisory and outsourcing firm.
Analysts have said that the Philippines has the second highest average tax rate among countries in the Association of Southeast Asian Nations (Asean), next to Vietnam and Thailand, while Singapore has the lowest marginal tax rate at both ends of its tax bracket spectrum, at 20 percent for the wealthiest and 2 percent for the lowest qualifying income tax payers. The Philippine rates are at 32 percent and 5 percent.
In value-added tax, the Philippines also comes on top (or near the top) of the most taxed in the region.
In the same business forum, Rogier Van den Brink, World Bank’s lead economist for poverty reduction and economic management in the Philippines, also underscored the need for reform in the tax system as a key to strengthening the national budget.
He recognized, though, the difficulty of instituting tax reforms given the strength of vested interests in the country.
Espano, for her part, said the country’s income tax rates have become uncompetitive, being the highest in the region, both for individuals and corporations.
“The income tax burden is regressive, with those in the middle-income level families unfairly being subjected to the same marginal rates as those among the well to-do segment of society,” she cited.
Further, she said: “The compliance process and requirements in paying taxes are so complex.”
Espano also observed that Philippine tax laws do not support start-ups and small businesses. “Currently, the solution provided under our tax system is to give tax exemptions for certain levels of revenues or income. Sadly, this system incentivizes people to continuously under-declare their income to avoid going into the tax net. The impact of this behavior is significant considering that our country has a large group of self-employed individuals and small businesses, including those organized by families of our millions of OFWs. I believe that a number of them would be willing to pay taxes if the system is simple and easy to follow.”
Alexander Cabrera, chairman and senior partner of PricewaterhouseCoopers (PwC) Philippines, recommended creating a separate tax regime with much lower taxes for SMEs to give them room to grow, noting that the “eternal problem for local SMEs is that all resources go into operations, leaving nothing for taxes.”
Tax is an important issue that candidates for Congress and the presidency have to address and explain to the electorate. How will they raise more money without unduly squeezing more from the already burdened taxpayers?