(The Philippine Star)
The reality of high income taxes in the Philippines, particularly for salaried employees, is an issue that Finance Secretary Cesar V. Purisima is grappling with.
For the longest time, Filipinos have been assessed income taxes on their individual taxable earnings way too high than what most of their Asian counterparts have been paying.
And after having been told how irresponsible the politicians who are in the government had been for so many years by spending what we’ve so painfully sweated just so the government coffers would have some money to spend on the bureaucratic machinery, it makes one’s blood boil.
In a position paper, the Tax Management Association of the Philippines highlighted the fact that income taxes in the Philippines are among the highest in the region.
Currently, ordinary employees are assessed according to income brackets. The top tax bracket to date is half a million pesos and above, which is taxed at 32 percent or roughly a third of what’s written on the salary contract between employer and employee.
Effectively, if you’re earning P38,000 a month, you’re bringing home to your family only P13,000 every half-month payday, which does not exactly buy a lot, especially if the spouse is not working and there are children to feed and send to school.
Struggling middle class
No wonder there are now more couples working, and yet still struggling to save money to be able to fulfill the basic dream that a middle class family aspires for, i.e., a house, lot and a car.
According to the TMAP, the P500,000-a-month salaried worker in the Philippines is paying significantly higher taxes than his counterpart in Malaysia (11 percent), Thailand (10 percent), Vietnam (20 percent), and Singapore (2 percent).
In fact, in many Asian countries, those paying the 32-percent tax rate have their tax brackets at much higher levels. Indonesia has a 30 percent tax income more than P1.8 million while Vietnam assesses a 35 percent tax for income over P1.99 million.
Laos has a tax rate of 20 percent for earnings over P2.8 million. Malaysia stipulates a tax of 26 percent for over P1.37 million earning; Singapore, 20 percent for over P11.2 million; and Thailand at 35 percent for over P5.4 million.
Growing support
The recommendation of TMAP is to bring the tax assessment of Filipino “top” earners “somewhere between 20 and 30 percent” to be in line with regional standards and to “make the Philippine workforce more competitive with its neighbors.”
The organization is also calling for the tax assessment of those with lower incomes to be realigned for a more equitable individual tax code and a reduction in the tax burden of salaried workers.
Furthermore, TMAP noted that the tax base could be widened to compensate for the “loss” in revenues from adoption of the above measures by simplifying the code for entrepreneurs and professionals, and therefore bringing into the net a larger part of the underground economy.
Two international institutions, the World Bank and the Asian Development Bank, have also expressed their support for a revamp of the current tax structure implemented by the Bureau of Internal Revenue not just for individuals but also for companies.
Past legislative counterparts
The TMAP recommendations partly reflect past bills filed by several lawmakers in Congress. Senator Juan Edgardo Angara, for example, was a champion of middle-income earners when he pushed for the passage of a bill to adjust and compress income tax brackets to give taxpayers better purchasing power.
Angara also proposed to bring down the country’s highest assessment of income tax from the current 32 percent to 25 percent over the period from 2015 to 2017, together with an increase in the tax exemption cap on annual benefits such as 13th month and Christmas bonuses to P75,000 from P30,000.
The TMAP position paper was formally submitted to the concerned bodies of the House of Representatives and Senate, and should strongly support past proposals by legislators to reform the current income tax structure.
Maintaining the balance
The Finance department has responded by saying that it is open to amending the country’s existing income tax structure to bring rates and brackets in line with regional norms, but any changes would be very much dependent on the progress of other proposed revenue raising measures.
The DOF had earlier said that the government would lose at least P43 billion in revenue by 2017 if Angara’s bill were to be passed.
Purisima cited the need for continued funding for infrastructure programs and social services, and any reduction in the revenue stream of the government would jeopardize the country’s economic progress as well as the welfare of the poor.
He also stressed the need to rationalize the fiscal incentives for corporations, as well as pass the fiscal responsibility bill that mandates lawmakers to temper the legislation of incentives and promote prudent government spending.
The Department of Trade and Industry (DTI), which grants incentives to companies, has been working on the fiscal responsibility bill, and passage in Congress is expected to be smooth sailing.
Reality bites
Realistically, however, coming up with a balanced Excel file that would offset any decrease in government tax collections from lowered income tax assessments versus an increase in tax collections from new revenue measures may take time.
Juan dela Cruz may have to continue tempering his personal budget and suffer the 32 percent tax assessment longer. Having a healthy middle class, no matter how economic books, studies and economists advocate this, will take awhile to happen.
The Philippines has gotten to that point where solutions are not as easy to implement no matter how simple they seem to be. And this is why it’s difficult not to keep my fingers perpetually crossed for the country in its current bid to become an economic tiger.
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