Lowering income taxes deserves a serious look

THE notion that Malacanang appears to be softening up to the persistent clamor for lowering of income tax rates due to the election season may have some merit.

After all, public opinion polls show that economic issues are among the primary concerns of voters. A better take-home pay after taxes certainly matters a lot to middle class salaried workers who are subjected to tax rates deemed among the highest in the Asean region.

With the middle class comprising a big bulk of the voting population, the fate of the administration ticket in the 2016 elections could depend on how Malacanang treats the income tax issue in the coming months. President Aquino’s earlier rejection of proposed tax cuts was echoed by administration standard bearer Mar Roxas, and if continuity — instead of change — resonates as a campaign battle cry, voter support could dwindle.

The issue of income taxes is deemed a major election issue and is of extreme importance to voters, a point that had been recognized early on by presidential bets Grace Poe and Jejomar Binay who both expressed strong enthusiasm for tax reform measures.

But aside from being an election issue, failure to lower tax rates on personal income and corporate income would put the country at a disadvantage, with the Philippines out of sync with neighboring countries when ASEAN integration officially comes into being this December.

The Joint Foreign Chambers (JFC) that consists of the various chambers of commerce representing “over 3,000 member companies engaged in over $230 billion worth of trade and some $30 billion worth of investments in the Philippines” has stressed that reducing tax rates “will increase investment and trade with higher total revenues being realized from lower corporate and personal income taxes.”

In a recent statement lamenting that the Philippines “imposes the second highest personal income tax and the highest corporate income tax among the ASEAN-6 countries,” the JFC noted the following: Philippine corporate income tax is 30%, while Indonesia and Malaysia are 25%, Vietnam is 22% (reduced from 35% in 2010), Thailand is 20% (reduced from 35% in 2010), and Singapore is 17%. The personal income tax in the Philippines is 32%, while Thailand is 35% (reduced from 37% in 2010), Vietnam is 35%, Indonesia is 30%, Malaysia is 26% (to be reduced to 25% in 2016), and Singapore is 20%.

“There clearly is a pattern to reduce corporate and individual income tax rates in competing ASEAN economies to make their countries more competitive. The Philippines should not fall behind the regional trend,” the JFC warned.

Our economic managers must realize that falling behind in our competitiveness during ASEAN integration would lead to failure to attract more investors and loss of our professionals who prefer other countries where income is taxed less.

In pushing for tax reform measures, the JFC has joined the Tax Management Association of the Philippines in a statement last month calling on government to adjust and restructure income tax brackets for individuals to solve inequities, and to cope with inflation, use as basis the consumer price index every three years.

Their “Unity Statement on Income Tax Reform” was met with outright rejection by President Aquino, citing the country risks ruining its international credit rating considering that “revenue would decrease and deficit would increase.”

Leading economists like Benjamin Diokno contend otherwise, saying “there is absolutely no threat of runaway deficit” especially so with this administration which he said is “notorious for underspending” and with the pattern of project implementation, “the administration would be lucky to have a one percent deficit-toGDP ratio for the entire year.”

“In 2014, the Aquino administration targeted a budget deficit of 266.2 billion or 2 percent of GDP. Actual deficit was only 73.1 billion or 0.6 percent of GDP,” Diokno explained. For 2015, he said that “while the budget deficit target is 283.7 billion or 2.0 percent of GDP, actual deficit as of end July is only 32.2 billion, or only 11.4 percent of planned deficit.”

As for decreased revenues, a potential revenue loss estimated at 40 billion is a mere 1.6 percent of national budget. But lowered income tax could spur further purchase of goods and services, leading to more consumption taxes going to government. And to cope with lesser revenues, government will be compelled to embark on more efficient spending and finally do away with unnecessary expenditures.

It is unlikely that lower taxes will affect our credit ratings, according to many economists who studied ASEAN countries with lower tax rates. And with our country’s gross international reserves at $80 billion, plus more than $25 billion in remittances from OFWs, defaulting on our foreign debt is highly improbable.

It is essential for the administration to be sensitive to the surging clamor for tax reform by taking a serious look at pending tax measures in Congress and try to at least seek a compromise to benefit overtaxed Filipinos and address the need to attract more foreign direct investments to sustain the country’s supposedly robust economy in the upcoming ASEAN integration.

E-mail: finding.lina@yahoo. com