An epochal change

It’s a change that must be done. But it needs the President to be directly involved to convince Congress.

For years, low- and middle-salary people have been persecuted with a thoughtless law passed in 1997 that did not recognize that, in this world, inflation happens. The same thing happened with “sin taxes” where the law passed in 1997 set tier rates at prices in 1986, with no provision for increase. It was corrected in 2012 with great benefit to Filipinos, where PhilHealth received some P150 billion more since the new law came into effect.

Inflation has forced nearly three-fourths of salary workers into the top tax bracket of 32 percent. One-third of what a longtime public school teacher or an office clerk earns annually goes to the government instead of for food, clothes, a decent life for their family. This must change, and enough lawmakers agree. But what they don’t agree to is to pay for it.

Well, the government can live with that. But—a huge “but”—we’d still be sitting in 2-, 3- or 4-hour traffic daily because it wouldn’t have the funds to build infrastructure, and it wouldn’t have the money to improve healthcare coverage and to provide social protection to disadvantaged groups.

The change Finance Secretary Carlos Dominguez wants—to generate revenues to accelerate improvement in what the government can do—won’t hurt the poor that the opposition wants to protect. At least I assume that’s why they oppose the increase in excise taxes on oil products. The increase is highest for gasoline (P7/liter from P4.35 to P5.35) and lowest for diesel and kerosene (P3/liter from zero). The poor will be given a subsidy to protect them from the impact higher gas prices might have on transport fares and basic commodities. Others will have higher take-home pay to cover the small increase. Both are likely to be quite small, anyway.

Associated with tax is oil marking. This will catch the tax cheats and help the government and the legitimate oil companies. That will add a mere P.07 or P.08 per liter to the cost of gas. Oil price fluctuations are more than that. And remember, we were paying P60/liter for gas and P50/liter for diesel when oil prices were $140/barrel. And we lived with it. Even with the higher tax we’re still better off.

Then there are the higher taxes on automobiles; these will mostly affect the rich. As for limiting VAT exemption to raw food and other necessities (education, health, etc.), affecting senior citizens and persons with disabilities, people’s higher income will cover any VAT loss elsewhere.

The oppositionists might want to think on this. The taxes on those earning less than P250,000 a year will see their take-home pay increase by anywhere between P3,000 and P62,500, depending on the amount of taxable compensation—more than enough to cover whatever miniscule payment they may have to make on their daily expenses. Those in the next bracket will have around P37,500 to P75,000 more in their pocket. That should easily cover some slight uptick in their daily costs through taxes elsewhere.

If Mr. Duterte steps in, the interminable questioning that otherwise will continue in the House can be brought to a halt and the bill transmitted to the Senate. I hope and expect the senators would recognize the importance of keeping the government in healthy financial shape, and rapidly agree to the proposals so we can all enjoy lower taxes. (Well, not all. The rich will still be hit, as they should be, with high tax rates.)

President Duterte, I appeal to you, take charge. Make this change a reality. Leave a mark on society that will form part of your legacy.

What must be also addressed with urgency and resolve are the other four packages in Dominguez’s tax reform. The most important is bringing corporate taxes down to a more competitive level. Those in the other Asean countries range from 17 percent to 25 percent. We should aim for the lower end. But that, too, needs changes elsewhere to cover the revenue loss.

We need Congress to think of the greater good. Lower taxes for people and companies, coupled with more money to spend on desperately needed infrastructure, will revolutionize society and make the Philippines equal to its neighbors.

It can be an epochal change.

Email: [email protected]. Read my previous columns: www.wallacebusinessforum.com.