Tax reform: Duterte wants to soak the rich

Taxing high-income earners more than their middle and poor counterparts is feasible, but the incoming Duterte government will need to be careful not to discourage them from investing.

“That’s feasible and you can calibrate it in such a way that you will not incur revenue losses,” Finance Undersecretary and chief economist Gil Beltran said in an interview.

Incoming president Rodrigo Duterte bared yesterday he intends to raise tax rates for those earning high, and lower those for the rest. He did not give details.

As it is, the current tax system is already “progressive” and simply reflects what Duterte wants to achieve, Internal Revenue commissioner Kim Henares said.

The difference, Henares said, would be on how he plans to reform the tax rates and brackets similar to botched legislative proposals last year.

Under the National Internal Revenue Code, there are seven tax brackets with the lowest charged a rate of 10 percent, while the biggest – at more P500,000 annual incometaxed 32 percent.

Beltran said Duterte’s plan could be similar to China’s tax system, where the highest individual tax rate is pegged at 45 percent.

The country also has seven brackets, but unlike the Philippines where rates increase five percent every step, China has varying increases of five, seven and 10 percent.

“This is consistent with what is required in the Constitution which is a progressive tax rate. This is not discriminatory,” Beltran said.

But he added that one problem he is seeing is the potential the proposal could deter investments.

“These earners are those who have businesses here. The trend now is to lower tax rates so if they see that ours are higher, they could easily go out,” Beltran said.

Henares agreed, adding even these high-earners can easily claim deductions which, in effect, lower their taxable income down the bracket.

As expected, all sorts of characters are now in Davao City hoping to get an audience or appointment with incoming president Rodrigo Roa Duterte — influence peddlers, instant supporters, jobseekers eyeing a position in the various posts that will be vacated once the new administration takes over, and regular people who just want to satisfy their curiosity about the incoming president.

Even as we write this column, the mayor has just announced some of his top picks for several positions, among them former Clark Development Corporation president and chief executive officer Arthur Tugade for the Transportation department. Art graduated cum laude from San Beda and was a classmate of the mayor at the San Beda College of Law. That the DOTC appointment was immediately announced goes to show that Mayor Duterte realizes how critical the problems are with regard to the Transportation department, insiders said.

“I’m a lawyer, so if they (businessmen) ask me about criminal law, I could give you three days worth of lecture. But if it is about Transportation, ask Art Tugade… That’s why I told you I will get the best economic minds,” he said during the press conference, disclosing that he is also getting businessman Sonny Dominguez in his Cabinet (presumably for the Finance portfolio). Also being eyed is former SEC commissioner Jun Yasay as interim Foreign secretary before turning over the post to Alan Cayetano who has to wait for the one-year ban on losing candidates to lapse. If not the DFA, the mayor’s running mate is also being groomed for the Justice department.

A Facebook account under the name of “Duterte” has also been conducting online surveys to see the reaction and comments of people on prospective appointees — and this has been welcomed by the public as it signals the incoming government will be inclusive and not blind or deaf to people’s sentiments.

Among those reportedly being eyed — and has been getting positive feedbacks online — is former Defense Secretary Gilbert Teodoro who flew to Davao early yesterday for a meeting with the mayor, who was also set to receive well wishers and guests, among them diplomats like Chinese Ambassador Zhao Jianhua, Japanese Ambassador Kazuhide Ishikawa and Israeli Ambassador Effie Ben Matityau. US Ambassador Philip Goldberg is also set to meet with the incoming president to congratulate him. In the next few days, congratulations will be pouring in from the various heads of state around the world who are all just waiting for the official proclamation of Duterte as the new president before they send in their messages.

For sure, there will be a lot of individuals who would lobby hard to be retained in their present positions, and it will be the job of the Duterte transition team to sift through the thousands of names that will be coming in as possible replacement of the co-terminus appointees numbering to 6,000 including the top 400 positions of Cabinet secretary, undersecretary and heads of government owned and controlled corporations.

According to Duterte spokesperson Peter Tiu Laviña (who will reportedly head the Communications portfolio and will likely be joined by lawyer Salvador Panelo and young lawyer Paola Alvarez), they have been getting feelers and applications from a lot of people, which they will shortlist before they give to incoming president Rody for his final nod. Even people perceived to have a connection with the mayor are being approached by those who want to get “in” to the Duterte camp — even though they have been known to favor the yellow color at the height of the campaign season.

We’re told the top hotels in Davao City are now fully booked to accommodate the influx of guests, among them the Royal Mandaya Hotel, the Park Inn Radisson and the Marco Polo Davao which is in a flurry of activity, what with all the meetings held there by the members of the Duterte team and the mayor himself.

The influx of people has prompted the Davao City police to double the security in the two mayor’s house in Matina and another residence in Bangkal. The security in the subdivisions have also been beefed up because of the numerous supporters, bystanders and kibitzers who are waiting for a glimpse of the winning mayor or just want to see where he lives. Obviously, the popularity of the mayor has also doubled since it became apparent he is the clear winner in the recent elections.

The Economist on ‘Duterte Harry’

Mayor Duterte has undoubtedly become an international celebrity judging from the May 23 issue of Time magazine which has him on the cover with the headline “The Punisher: Why Rodrigo Duterte is the Philippines’ New Leader.” A couple of days ago, The Economist came out with its own take on the Duterte phenomenon, titling it “An election in the Philippines: The dangers of Duterte Harry.”

The Economist expressed the concern and uncertainty of many foreign investors regarding the economy and whether the six percent growth will be sustained under the new president.

To be fair, the article took into consideration the fact that the vaunted economic progress under the Aquino administration has failed to trickle down “to millions of Filipinos, especially in the provinces, who have missed out on the fruits of growth.” The Filipino elites in their gated communities “failed to grasp how much petty corruption and gun violence blight ordinary lives… the elite… failed to see resentment growing at their wealth and complacency,” The Economist pointed out.

“Now they should acknowledge that the ‘people power’ revolution in 1986 that unseated Marcos, and put Mr. Aquino’s mother in power, has ossified into a self-selecting oligarchy,” the article further noted.

Although Duterte’s economic and foreign policies are still unclear to the international community, they should take heart in the mayor’s promise that he would get the best minds to serve in his government. ***