Lower Income Taxes Now

“With the current income tax brackets and tax rates, the Philippines effectively imposes the highest personal income tax in the entire Association of Southeast Asian Nations (ASEAN) region.” – Rep. Neri Colmenares


MANILA – After protesting in front of the Bureau of Internal Revenue (BIR) for the latter’s opposition to the reduction in income taxes, Bayan Muna Rep. Neri Colmenares welcomed the news that House Speaker Feliciano Belmonte would push for the passage of bills lowering the income tax. Reports said Belmonte and Senate President Franklin Drilon will try to convince President Aquino to support the moves to lower income taxes.

Picture: Colmenares bats for lower income tax
Bayan Muna Rep. Neri Colmenares brings campaign to lower income tax at the gates of BIR.

Like the BIR, President Aquino and Sec. Mar Roxas had both publicly opposed this demand of workers and employees.
Rep. Colmenares is the principal author of House Bill 5401 or the Personal Income Tax Reform bill seeking to slash the income taxes of the middle class, and exempt low-income families earning a maximum of P396,000 ($8,510) annually from income tax.

A senatorial candidate next year, Colmenares has dared other 2016 candidates to announce their positions on lowering income tax. The Filipino people has long been overtaxed but underserved,” he said.

To counterproposals of increasing the Value Added Tax while lowering income tax, Colmenares said there is no more need to increase taxes “because the budget is already bloated and the Aquino administration is deliberately underspending to have more Disbursement Acceleration Program (DAP)-like savings.”

Mitigating the conditions of ‘overtaxed, underserved Filipinos

Since 1986, the tax base has remained largely unchanged. Meanwhile, the 1986 to 2014 Consumer Price Index published by the Philippine Statistics Authority reveals that national consumer prices have increased by 539.53 percent. As such, said Colmenares, the P500,000 ($10,744) top tax base, if adjusted to its present value, is now equivalent to P2.697 million ($58,000).

“With the current income tax brackets and tax rates, the Philippines effectively imposes the highest personal income tax in the entire Association of Southeast Asian Nations (ASEAN) region,” he said.

A study presented by the Tax Management Association of the Philippines (TMAP) reveals that while a Filipino individual earning P500,000 ($10,744) annually is taxed at 32 percent, his ASEAN neighbors with equivalent income are taxed at the following rates: Vietnam – 20 percent; Cambodia – 20 percent; Laos – 12 percent; Malaysia – 11 percent; Thailand- 10 percent; Singapore – 2 percent; and Brunei – no taxes.

“Against such a backdrop, a great majority of Filipinos would have to content themselves with meager salaries,” said Colmenares.

The National Wages Productivity Commission said that as of January 2015, the daily minimum wage rate in Metro Manila, the highest nationwide, is at P466 ($10) per day, while the lowest is at P213 ($5) for agricultural and non-agricultural workers in the Ilocos region.

“These translate to an annual income of about P123,000 ($2,643) for minimum wage earners in Metro Manila and about P56,232 ($1,208) for the Ilocos region,” said the progressive solon. This minimum wage is at a “dismal” level, said Colmenares, and it gets worse with the prevailing tax system, he added.

Today, any additional income no matter how small in excess of the minimum wage makes the whole income taxable. Colmenares said the income tax should have been brought down long ago.

“In fact the clamour to approve the law that lowers income tax is now snowballing not only among the ranks of taxpayers themselves but even among tax managers and practitioners like the TMAP. In fact, even the tax collecting agencies– the Department of Finance and the Bureau of Internal Revenue — recognize the need for such tax adjustments,” said Rep. Colmenares.

Calls for mass action for lowering income tax

In a related development, the labor center Kilusang Mayo Uno (KMU) called on workers and the general public to intensify calls for a tax relief. It cited the widespread and growing calls coming from workers and the public as the reason why “the Aquino government was forced to take back its outright rejection of calls for tax relief.”

“Tax relief for workers and ordinary Filipinos is a legitimate election issue. Roxas, Robredo and other Liberal Party candidates would surely lose more votes if the Aquino government rejects calls for lower income taxes,” Elmer “Bong” Labog, chairman of KMU, said.

The labor leader said the Aquino government has squeezed the workers and Filipinos dry through intolerably high taxes. It urged workers and ordinary Filipinos to help push this government to give Filipinos a relief from high taxes before it finishes its term.

At the same time, it warned the Aquino government “not to exploit calls to lower the income taxes of ordinary Filipinos by further lowering taxes being paid by big corporations and increasing the Value-Added Tax from 12 percent to 14 percent.”

Based on the draft proposal, House Bill 5401 seeks to enact the following:

1. Exempt income of families earning below P396,000 ($8,510) per year to preserve the monthly living wage of P33,000 ($709) from income taxation;

2. Restructure and simplify the income brackets and their corresponding tax rates;

3. Reduce and align the maximum tax rate with that of corporate taxpayers (from 32 percent to 30 percent);

4. Adjust the top tax base — from P500,000 to P2,700,000 ($58,020) — to reflect adjustments in the Consumer Price Index (1986-2014) with P500,000 taxed only about 10 percent;

5. Establish an automatic adjustment/indexation mechanism (interval of 3 years); and

6. Align the Optional Standard Deduction (OSD) base for individuals with the OSD base for corporations.

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