By Satur C. Ocampo
At Ground Level | The Philippine Star
Aiming to convince President Aquino to drop his opposition to lowering income taxes, Speaker Feliciano Belmonte Jr. told journalists the House leadership is determined to legislate such reduction – at least one of the pending proposals – before the 16th Congress winds up next June.
The Speaker singled out one proposal for passage by Congress: to adjust the various levels of taxable income to inflation.
When they talk to P-Noy, as Belmonte said he and Senate President Franklin Drilon would do, they should not go for just one aspect of income tax reform. They ought to push for a progressive tax regime that should effectively shift the burden from the lower-income earners to the highest-income corporations and individuals.
Is that asking too much? No! Consider the following:
• The 10 income tax brackets – with P500,000 as top tax base – were set in July 1986 and have stayed substantially intact since then. Also since 1986, the National Statistics Office says, consumer prices had increased by 539.53% in 2014. The P500,000 top tax base is now equivalent to P2.697 million (as adjusted for inflation).
• With the current income tax brackets and tax rates, the Philippines effectively imposes the highest personal income tax in the whole Association of Southeast Asian Nations region. A study presented by the Tax Management Association of the Philippines (TMAP) shows that a Filipino taxpayer earning P500,000 annually is taxed at 32%. The comparative tax rates for equivalent income in other ASEAN countries are: Vietnam, 20%; Cambodia, 20%; Laos, 12%; Malaysia, 11%; Thailand, 10%; Singapore, 2%; and Brunei, no taxes.
• January 2015 data from the National Wage Productivity Commission show the highest daily minimum wage was P466, or P123,000/year (in Metro Manila) and the lowest is P213, or P56,232/year (in Ilocos region). While minimum wage earners are tax exempt, these income levels fall short of the Family Living Wage (“the minimum amount needed by a family of six members to meet its daily food and non-food needs, plus a 10% allocation for savings”). As of August 2014, Ibon Foundation estimated the Family Living Wage at P1,086/day, or P396,390/year.
• Under the prevailing tax system, once a minimum wage earner acquires additional income no matter how small in excess of the minimum, the entire income becomes taxable.
(The above-cited data come from the explanatory note of House Bill 5401, filed by Bayan Muna Representatives Neri Colmenares and Carlos Isagani Zarate. The bills’ proposals are cited below.)
• From 2010 to 2013, according to Ibon Foundation, individual income tax payments grew by 18%, compared to only 13.3% for corporate income taxes. In 2013, the share of individual income taxes to total government revenues was 18.7%, whereas that of corporate income taxes was only 12.9%.
• Even taxes on purchases of goods and services grew faster than corporate income taxes. Under the 2015 national budget, Ibon observes, the government will continue to source revenues from indirect taxes. This disproportionately burdens the low- and middle-income Filipino consumers, while boosting the incomes of rich families and big corporations.
• Under the current tax system, the TMAP notes, the government has been relying on raising revenues through inflation, rather than through efficient tax administration. This, it stresses, is detrimental to salaried workers, (who) account for about 80% of total BIR collection from individual taxpayers.
• Citing the BIR’s annual report, TMAP points out that taxes withheld from salaried workers were the single biggest-contributor group to the hike in BIR collections from 2013 to 2014: providing 2.5% (P31 billion) of the 9.7% (P118 billion) increase.
It’s high time the government addressed the built-in inequity of the personal income tax system before P-Noy’s term ends, the group urges, stressing: “Maintaining the status quo…is no longer acceptable for the working sector which has endured the impact of inflation through the years.”
Back to House Bill 5401, Colmenares and Zarate bat for equitably adjusting and restructuring the income tax brackets and rates “to provide immediate relief to individual taxpayers.”
Their bill seeks to exempt low-income families/earners from income tax; fix the minimum taxable income at P396,000 (family living wage); restructure and simplify the income brackets and tax rates; reduce and align the maximum tax rate with that of corporate taxpayers (from 32% to 30%); raise the top tax base from P500,000 to P2.7 million (to reflect the effect of inflation); set an automatic adjustment/indexation mechanism; and align the optional standard deduction base for individuals with that for corporations,
In specific terms, House Bill 5401 calls for the following adjustments in annual income tax rates: not over P396,000, tax exempt; over P396,000 to P640,000, 10% of excess over P396,000; over P640,000 to P1million, P24,400+15% of excess; P1 million to P1,650,000, P78,400+ 20% of excess; over P1,650,000 to P2.7 million, P208,400+ 25% of excess; over P2.7 million, P470,900+ 30% of excess.
It proposes that on Jan. 1, 2019 and every 3 years thereafter, the specified taxable amounts “shall be adjusted to their (current) value using the consumer price index as published by the National Statistics Office.”
The Senate version of this proposal, filed by Senate President Pro-Tempore Ralph Recto, provides these figures (net taxable income) and rates: below P20,000, tax exempt; below P60,000, 10%; P60,000 t0 P140,000, 15%; P140,000 to P280,000, 20%; P280,000 to P500,000, 25%; P500,000 to P1 million, 30%. These amounts and rates shall be indexed “automatically to inflation every 6 years, without the need for legislative action.”
Which version do you prefer?
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Published in The Philippine Star
October 24, 2015