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Tax break for labor

/ 11:24 PM September 16, 2013

The Aquino administration is facing a tricky situation on the labor front. With the number of unemployed Filipinos swelling to an estimated three million in July, labor groups continue to clamor for higher wages.

The position of the government so far is to avoid any salary increase. Economic Planning Secretary Arsenio Balisacan has argued that it would be imprudent given the government’s desire to bring down the rising unemployment rate. He explained that any increase in wages over the short term would drag down efforts to create more jobs and reduce the jobless rate. “We cannot afford to further raise wages at this time when unemployment is still high. What should be done is to open more employment opportunities so that more people can find work,” he suggested.

Balisacan said any proposal to further raise wages in the coming months should be shelved, and stressed the need to focus efforts on making the Philippines more attractive to investors and creating more jobs. Only two weeks ago, the wage board for the National Capital Region approved a P10 increase in the daily minimum wage in Metro Manila, raising the total to P466. Labor groups were incensed at the paltry increase. But Balisacan said that the amount approved was intended only to prevent the erosion of the average household’s purchasing power, and that any further wage increase would run counter to efforts to cut the unemployment rate.


According to the latest data released by the National Statistics Office, the unemployment rate rose to 7.3 percent in July from 7 percent in the same month last year despite a robust economic growth that ranked the Philippines among the fastest-growing economies in Asia. The National Economic and Development Authority said the increase in the jobless rate was due to an unusual jump in the number of entrants to the labor force. There were 41.18 million people comprising the labor force in July, of whom around 3 million were unemployed. Neda noted that the labor force increased by 786,000 from 40.39 million in July last year but that only 620,000 additional jobs were created during the period.

However, the unemployed are just part of the problem. A bigger problem is the underemployment rate, which the NSO reported at 19.2 percent in July, although this was better than the 22.8 percent recorded a year ago. This translated to nearly 9 million Filipinos. In the official definition, the “underemployed” are those who desire additional work hours.

Balisacan acknowledged that the labor situation, as reflected by the unemployment and underemployment rates, indicated that efforts at creating more jobs needed to be doubled. President Aquino has promised to reduce the unemployment rate to 6 percent at most by the end of his term in 2016. Proposals to achieve this target include easing restrictions on the entry of foreign investments, boosting tourism and infrastructure to generate more work in the provinces, and expanding farming and fishing.

In the meantime, the government can study proposals to link wage increases to the level of skills of workers—instead of adjustments across the board. By giving fair salaries based on qualifications, the Philippines may be able to keep its skilled citizens and stem the continuing exodus of its workers to foreign markets.

One proposal that will greatly help the working class is the grant of a tax break. Why not reduce the amount of taxes withheld from middle-income and salaried workers in lieu of any wage increase? To offset this, the Bureau of Internal Revenue can treble or even quadruple its efforts in going after tax evaders—professionals and corporate—who must owe tens of billions of pesos in taxes. NSO data show that of the more than 38 million Filipinos who had jobs as of July, 57.5 percent (or about 22 million) fell under the category of “wage and salary earners.” These are the people that will stand to benefit from a tax reprieve.

The government is correct in giving priority to addressing the unemployment—plus the bigger underemployment—issue. However, it cannot overlook the fact that the struggling, salaried middle class also deserves a break. A little reprieve in the tax payments of salaried workers will definitely go a long way in helping them cope with everyday life that gets harder by the day.

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