Winners and losers

Iam such a softie on people who ask for my help. So even if my work is spilling out of my ears, I said yes to Senator Sonny Angara. He came to my office to ask if I could help him in his work on tax reforms. Fortunately, my work as former undersecretary gave me enough perspective on how to work with a decisionmaker. The best way I could help is to analyze, and if possible, quantify the effects of the alternatives that are on the table. My views are of course limited since I do not have an inkling of the pressures that he bears. The people who elected him come with many colors and conflicting interests which he has to balance with the need for revenues. The reality is taxes hurt people especially the poor. They reduce their purchasing power and affect their welfare.

There are winners and losers in the Senate version of the TRAIN:

1. Every income earner will enjoy a higher income tax exemption. Mine will go from R50,000 to R250,00–a significant tax relief indeed.

But I am afraid that government, especially the one after this administration, will lose in the end because a big fraction of the tax base will be lost I fear the consequences of losing almost R153 billion from wageearners. We are endangering the stability of the personal income tax that has been a solid foundation of our tax system.

2. Senior citizens and the physically handicapped will keep their VAT exemption. Senator Sonny smiles and says that I must like this provision, being a senior citizen myself. Initially, I did not use this privilege having opposed the measure when I was still in government. But lately, I have used it as a form of silent protest on how the quality of public services has deteriorated.

3. Owners of condominium units will be vindicated with the explicit VAT exemption of association dues. I have always maintained that association dues are not revenues. They are pooled contributions of owners for common expenses such as security services, property taxes, and lighting. But BIR subjected them to VAT, I guess, in an attempt to meet its revenue target.

4. Heirs and recipients of donations are winners as well. The estate and donors tax rates were drastically cut from 20% to 6%. In addition, the value of exemption was raised, R10 million for family home, and R5.0 million to cover related deductions. I have reiterated to Senator Sonny that this waters down the potential of the tax system to redistribute wealth. But, my task is just to recommend.

5. Bottlers of mineral water, pure fruit, and vegetable juices are happier. The demand for their products will be higher now that a tax of R4.50 to R9.00 per liter on sweetened beverages has been approved by the Senate. I have always maintained that the tax should be based on sugar content but what can one do if the FDA says it does not have the capacity to administer the tax.

I cannot even imagine the disappointment of my friends from Negros Occidental on this measure.

6. Sales of electric cooperatives are now subject to VAT. But the other cooperatives are really quite “astig” (Influential). The withdrawal of their VAT exemption has always been attempted but to no avail. It was a big mistake to have exempted them in the first place. It opened a floodgate for many other exemptions. Government should have just limited the VAT exemption on goods and services that are consumed by the poor.

7. Recipients of dividends will retain their preferential rate of 10%. I thought that the Senate would correct the distortionary effect of taxing passive incomes at different rates. Currently, interest income from peso deposits is taxed at 20%. The Senate raised the tax on interest from dollar deposits and capital gains on stock transactions of closed corporations at 15%. Their rates still are below 20%, and will influence investment choices.

8. Businesses in economic zones remain winners because their zero-rating will be maintained. This privilege has been subject to abuse since sales to the domestic market can always be presented as export sales. Firms do not need to go to the Caribbean for tax shelters because we have them right here in the Philippines.

9. But exporters are major winners if and when a refund system of their input VAT is put in place. The Senate bill prescribes a 90-day period within which refunds can be given. A 5% appropriation cover was also legislated.

10. The automobile industry is a gainer. The highest excise tax on cars used to be 60%. Now, it is down to 20%.

The deliberations of the bicameral conference committee on the excise tax on oil products will expectedly rough. I wouldn’t even think of walking a mile in Senator Sonny’s shoes. The best l can do is to wish him well.

mguevara@synergeia. org.ph