TAX­A­TION AND THE REENGINEERING OF PHILIP­PINE SO­CI­ETY BE­ING RIGHT

Business World - - OPINION -

Acru­cial part of gover­nance, nor­mally over­looked, is the tax sys­tem. “Over­looked” be­cause it’s nar­rowly viewed merely as a rev­enue-gen­er­at­ing ma­chine. So long as the gov­ern­ment is get­ting money, then the tax sys­tem is gen­er­ally left alone.

Which is wrong: the tax sys­tem, like the bud­get or any part of our gov­ern­men­tal ar­chi­tec­ture, plays a sig­nif­i­cant role in defin­ing our so­ci­ety.

The tax re­form pack­age cur­rently be­ing pushed by the gov­ern­ment (i.e., TRAIN or Tax Re­form for Ac­cel­er­a­tion and In­clu­sion) rep­re­sents a great op­por­tu­nity to lay­out, craft, and im­ple­ment a vi­sion of what Philip­pine so­ci­ety could be.

For the mo­ment, un­for­tu­nately, that vi­sion is re­ac­tively fix­ated mostly on poverty al­le­vi­a­tion, in­come re­dis­tri­bu­tion, en­ti­tle­ments, and quick fixes to­wards fat­ten­ing the na­tional cof­fers.

The pack­age makes much of the fact that those earn­ing not more than P250,000 and be­low ( along with the 13th month pay, as­sum­ing such does not ex­ceed P82,000) are ex­empted from pay­ing in­come taxes.

The gov­ern­ment says this will hope­fully put more money in the pock­ets of our poorer cit­i­zens, while at the same time sim­pli­fy­ing the tax ad­min­is­tra­tion/col­lec­tion process.

But this in­ad­ver­tently led to cer­tain prob­lems, amongst which is con­flict­ing con­se­quences.

Much has been said of pro­gres­sive tax­a­tion and the need for the rich to shoul­der more. But the rich has al­ways been shoul­der­ing the bulk of taxes col­lected.

The plan calls for the greater many to pay a max­i­mum of 25% in­come tax, with the “ul­tra-rich” levied a 35% rate.

Mean­while, in­creased oil and car taxes (again de­signed to hit the rich more) will fund the ad­di­tional CCT (for the poor­est 25%) of P300/month doled-out, with the “50th-75th per­centile” given “pub­lic trans­port sub­si­dies.”

But look at it this way, even as­sum­ing the en­tire wealth of the 50 rich­est Filipinos (said to equal 24% of the 2016 GDP) is taxed 100%, what’s col­lected is still just a lit­tle over half (P3.7 tril­lion) of the cur­rent na­tional debt ( P6.4 tril­lion). The na­tional debt is ac­tu­ally equal to nearly half of our 2016 GDP (P15.250 tril­lion).

The point is: no amount of tax re­form can com­pletely help in terms of putting gov­ern­ment fi­nances aright if the spend­ing side is not ad­dressed.

Gov­ern­ment should sim­ply spend less by cut­ting wel­fare and en­ti­tle­ment costs.

The prob­lem with be­ing un­able to man­age gov­ern­ment debt and deficit is that it leads to in­fla­tion. Right now, our Oc­to­ber in­fla­tion rate year on year is said to be 3.6%, rep­re­sent­ing one of the fastest in­creases in al­most three years. Blame is de­flected to oil and trans­port costs, along with a weak­en­ing peso.

Re­gard­less, high in­fla­tion rep­re­sents higher con­sumer prices (along with higher loan in­ter­est rates), thus off­set­ting the ben­e­fits in­come tax re­duc­tions may bring.

JEMY GATDULA No amount of tax re­form can com­pletely help in terms of putting gov­ern­ment fi­nances aright if the spend­ing side is not ad­dressed.

In­fla­tion could have been coun­ter­acted by the in­crease in wages, aris­ing from the cre­ation of more jobs and in­vest­ments.

But this is ren­dered un­likely due to the high taxes im­posed on the wealthy (which nor­mally cre­ates the jobs) and the dif­fi­culty in start­ing and do­ing busi­ness, which hin­ders the mid­dle class from gen­er­at­ing their own in­come ( see 2018 World Bank-IFC Do­ing Busi­ness Re­port, as well as US Mil­len­nium Chal­lenge Corp. cor­rup­tion and rule of law score­card).

Iron­i­cally, while the pro­posed tax struc­ture may not nec­es­sar­ily en­cour­age the cre­ation of new wealth, a self-en­ti­tle­ment pro­vi­sion was put in place for the old rich to hold on to theirs: es­tate and donor’s taxes have been re­duced so that both are now charged at 6% (from the pre­vi­ous 20% for es­tate taxes and 15% for donor’s).

If in­deed, the bulk of the na­tion’s wealth is with the top 20% of our so­ci­ety, how this helps the poor is a mys­tery.

Like the CCT, it just en­sures the trans­fer of wealth from those who worked hard for it to those who had noth­ing to do with its de­vel­op­ment and ac­qui­si­tion. If the prob­lem were loop­holes, then why not fix them rather than al­low­ing ex­clu­sive trans­fer within the elite fam­i­lies?

Which leads, fi­nally, to the fact that the pro­posed tax law is no­tice­ably bereft of any ben­e­fit for mar­ried cou­ples or fam­i­lies with chil­dren.

The ex­pla­na­tion given was the zero taxes on the first P250,000 (along with the sim­pli­fi­ca­tion of the sys­tem). But that’s nei­ther here nor there. In­cen­tives or tax ben­e­fits could still have been placed in it.

For some­thing rec­og­nized as the great­est wel­fare, ed­u­ca­tion, and health in­sti­tu­tion ever in his­tory, for the Philip­pines to not put mar­riage, fam­ily, and chil­dren pride of place shows how lit­tle value we give to them.

As it stands, no dif­fer­ence — tax­wise — is made be­tween sin­gle, live- in ar­range­ments, or sep­a­rated in­di­vid­u­als, and a wed­ded cou­ple or tra­di­tional fam­ily.

Be­tween get­ting mar­ried or build­ing a fam­ily vis-a-vis be­ing poor, it would seem that the lat­ter is given greater value.

This is un­for­tu­nate for our so­ci­ety.

And supremely ironic be­cause it’s long been proven that one of the best ways to eco­nom­i­cally de­velop coun­tries is to en­cour­age healthy marriages and fam­i­lies.

JEMY GATDULA is a Se­nior Fel­low of the Philip­pine Coun­cil for For­eign Re­la­tions and a Philip­pine Ju­di­cial Academy law lec­turer for con­sti­tu­tional phi­los­o­phy and ju­rispru­dence. je­my­gat­dula@ya­hoo.com www.je­my­gat­dula. blogspot.com face­book.com/jemy.gatdula T

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