The Philippine government’s own addiction
PRESIDENT Duterte has an opportunity to make the Philippine chairmanship of ASEAN memorable to our people by addressing one national issue that sets us apart from our neighbors: Reform the tax system which imposes the highest income taxes in the region.
It is a “distinction” that President Duterte should not think twice about giving up: the Philippine government’s terrible long-running addiction to highest taxes in ASEAN.
The Tax Management Association of the Philippines has long told Congress and everyone who bothered to listen that while Filipinos earning 1500,000 annually are taxed at 32 percent, our ASEAN counterparts are taxed at the following rates: Vietnam and Cambodia, 20 percent; Laos, 12 percent; Malaysia, 11 percent; Thailand, 10 percent; and Singapore 2 percent. No personal income tax is imposed in Brunei.
Under the present tax system, Henry Sy and Jaime Augusto Zobel de Ayala paying the exact same 32 percent personal income tax rate as their mid-level managers in their conglomerates. It is obscene, unfair, and must be corrected.
When it was mentioned during the last campaign, there was apparently a consensus among candidates that the tax system needs to be reformed – a legitimate people’s demand that has gone unheeded by past administrations. It was also among the changes that President Duterte promised to deliver, and which the people are waiting to happen.
President Duterte should thus certify House Bill 333 as a priority administration measure. Filed by Bayan Muna Rep. Carlos Isagani Zarate, it is a refiling of House Bill 5401 which he and fellow Bayan Muna Rep. Neri Colmenares fought for in the last Congress.
The bill has two objectives: to give meat to a constitutional promise of a progressive taxation system, and to “alleviate the plight of our people who, for the longest time, have been overtaxed, yet underpaid.”
By progressive, it simply means that those who earn more would have to contribute more; while those who earn less would have to contribute less. It is the opposite of what we have now, a regressive tax system that unfairly imposes the same income tax rate on a taipan or tycoon and on their employees.
The bill will, among others, update the consolidated tax table for pure compensation income earners, professionals, businesspersons and self-employed individuals.
That tax table – which created ten income brackets and with 1500,000 as the peg for the highest tax bracket – was first laid down in July 31, 1986 by then-President Corazon Aquino.
Maybe in 1986, earning 1500,000 meant being very lucky. That’s okay, as a matter of historical fact. What is not okay is that it is no longer true in 2016.
Zarate and Colmenares points out that “based on the 1986 to 2014 Consumer Price Index published by the National Statistics Office, national consumer prices have already increased by 539.53 percent since 1986.”
“Thus, the 1500,000 top tax base, if adjusted to its present value, is now equivalent to 12.697 million,” they said.
It is tempting to just say that past administrations may have been merely remiss about updating the tax laws. But of course we know them better, these past administrations. They were addicted to taxes. They imposed taxes, left and right – expanded valueadded tax, road users tax, sin tax, and more.
Which partly explains why many professionals have fled the country in droves, as they feel the state overburdens them with taxes.
It is true that minimum wage earners are exempted from paying income taxes. But under the system, if they work harder and attain their first steps towards success, they would be immediately burdened by the toughest income tax rates in ASEAN.
Under the Bayan Muna bill, the highest tax bracket will no longer be those earning 1500,000 and above. It would be those earning 12,700,000 and above, and they would be made to pay 30 percent, not 32 percent.
The lowest income tax bracket would be those earning 1396,0011640,000, and they would be made to pay 10 percent of the excess over 1396,000.
Why should the government start taxing people only after they earn 1396,000? That’s the annual family living wage or “the minimum amount needed by a family of six members to meet its daily food and non-food needs, plus a 10 percent allocation for savings.”
Some fear that government may not have revenues left if there will be such “drastic” tax reforms, and that the delivery of vital services may be affected. It is total baloney.
Fear not. The people in countries with progressive taxation don’t see their public services breaking down.
The anti-reform mindset also ignores the fact that under the current tax system, those who have more and earn are made to escape their social and civic responsibilities, and the rise of a big, strong, and dynamic middle class – a matter crucial to the country’s long-term progress – is being prevented.
There are lots of other burdensome taxes, fees, and arrangements imposed on the public that must be abolished or corrected. Reforms must also include ending the unfair tax breaks given to those who don’t need them like big profit-hungry corporations.
There are likewise lots of misappropriation of public funds ranging from pork barrel and lump,sum appropriations to automatic appropriations to malversation to outright plunder and corruption that must all be wiped out and then redirected to the public good.
Fairness in taxation does not mean the government would be starved of funds. It means the public won’t be made to starve, the poor would be helped to rise from poverty, a middle class would be created and allowed to grow, and the rich compelled to contribute their just share. It also means the government would not be a burden, but a partner for change – more creative, more prudent, and more honest both in obtaining revenues and in spending them.
President Duterte has lots of political capital for this most urgent reform, and many people no doubt stand ready to support him if and when he chooses to take on this task and make House Bill 333 an administration priority.