The tax reform paradox

AT FIRST glance, the idea of reducing individual and corporate tax rates to 25 percent, especially for those earning P1 million or less in a year, seems to be pro-poor as the wage earners are now considered the most taxed sector of the economy.

But with government raising the consumption tax (value added tax) and excise tax on petroleum products and sugar-based products as well as sin taxes , these measures would again weigh more heavily on the targeted sector--the marginal wage earners.

There seems to be a complete disconnect and paradox in the way economic planners are working out their so-called tax reform program.

As Deputy House Speaker Romero Federico "Miro" Saenz Quimbo (one of the 12 deputy speakers appointed in preparation for federalism) said in a recent interview “increasing the tax on diesel and other petroleum products will only impact on inflation, thereby aggravating the condition of the poor and lowly salaried workers.”

He suggested instead that tax administration should be strengthened and proper tax enforcement be implemented so that no new taxes would be necessary.

Besides, he said, “government has so much money that it did not use in the past and why should it now raise taxes when it still has a huge surplus of money.”

 

Pro poor?

Last September, the Department of Finance (DOF) submitted to the Lower House bills comprising the first package of its proposed tax policy reform program that slashes personal income tax rates but raises excise rates slapped on oil products and vehicles.

This first of four tax packages included: a) restructuring the personal income tax system; b) expanding the value-added tax base by reducing exemptions; c) raising excise taxes on oil products and d) restructuring the excise tax on automobiles, save for buses, cargo vans, jeeps, jeepney substitutes, special purpose vehicles as well as trucks.

The reforms on personal incomes included “adjusting the income tax brackets to correct so-called income creeping; reducing the personal income tax maximum rate to 25 percent from 32 percent, except for highest income earners; and shifting to a simpler, modified gross system.”

Finance Secretary Carlos G. Dominguez III had said the plan was to impose a higher personal income tax rate of 35 percent for the “ultra- rich” earning P5 million or more a year.

He also dismissed claims that the tax reform program to adjust VAT base and excise tax rates are anti- poor because “being  consumption taxes, these will impact most on affluent Filipinos who make use of more goods and services than the poor, low income and middle class households.”

Finance Undersecretary Karl Kendrick Chua claimed that the proposed Tax Reform for Acceleration and Inclusion Act would even shield poor and low-income consumers from the effects of tax adjustment proposals "because the new government is committed to providing highly targeted direct transfer programs and indirect subsidies to them."

 

Anti-poor

But members of the House Makabayan bloc branded as “anti-poor” the first package of tax reforms submitted to the 17th Congress.

ACT party-list Representative Antonio Tinio, said the proposed tax reform package remains a “burden” on ordinary Filipinos.

“So from 0% for those earning not over P250,000 annual income, the next level of the tax rate is at 20%….For me, this remains a huge income tax burden for the lower- and middle-income earners, the ordinary employees.,” he said.

Bayan Muna Representative Carlos Isagani Zarate also said the tax exemption for those earning P250, 000 annually should be increased to those earning P396,390 a year.

“Under our proposal House Bill 333, we use the amount of P396,390.00 as the minimum figure of tax exemption because this is the basic living salary needed by a family,” said Zarate, citing a study by Ibon Foundation.

Albay Rep. Edcel Lagman said the bill may reduce the personal income tax, but it would impose offsetting measures such as increasing the tax on oil, as well as removing the exemption from value-added tax (VAT) of senior citizens and the persons with disabilities (PWDs).

 

'Domino effect'

THE DOF estimated that the proposed tax reforms would cost the government P173.8 billion in foregone revenues.

However, it plans to offset the amount through potential gains from the following revenue-enhancing reforms: P200 billion from raising fuel excise tax; P164.4 billion from broadening the tax base through VAT-based expansion; P18 billion for an excise tax to be applied to sweets and P33.8 billion from rationalizing fiscal incentives

Gabriela Women’s Party Representative Emmi De Jesus called the tax reform package as “anti-people” as it plans to remove some of the VAT exemptions enjoyed by senior citizens, persons with disabilities, and other sectors. Zarate also warned against the trickle-down effect of hiking taxes on fuel products.

“We know the domino effect of imposing this tax on diesel. If we impose that per liter, the effect will cascade down to the citizens,” Zarate said.

 

 

 

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