Wealth tax dilemma

As expected, President Marcos Jr. spent a good part of his first State of the Nation Address (Sona) detailing his administration’s manifold plans to generate additional revenues to underwrite ambitious programs that would combat inflation, while reviving an economy at its worst contraction since World War II.

Absent from the President’s list of priority measures is the imposition of a wealth tax on the country’s richest individuals, a plan being considered by Sen. Sherwin Gatchalian. The senator said he was moved to act after noting that contrary to expectation, Filipinos on the annual Forbes list of billionaires are not on the list of the country’s top taxpayers, which is instead dominated by TV and movie personalities.

“You’d be surprised,” Gatchalian said. “We should really fix the system so that the rich and the affluent would pay more in taxes,” he added. As chair of the powerful Senate committee on ways and means of the 19th Congress, Gatchalian is in a position to shepherd the measure through the legislative process. While Gatchalian has yet to come up with the finer details of his proposal, Ibon Foundation has proposed a 1 percent “superrich” tax on wealth above P1 billion, 2 percent for wealth above P2 billion, and 3 percent for individual wealth above P3 billion.

It’s about time to put in place a more “progressive” tax system that benefits the poor, said Ibon Foundation executive director Sonny Africa, who had long advocated the wealth tax.

By Ibon’s estimate, the 2,919 Filipino billionaires are worth a combined P8.1 trillion, which is equivalent to 16 percent of the country’s wealth. The proposed “tiny” wealth tax will contribute almost P470 billion a year to government coffers, minimizing the need to impose new or bigger taxes on the already overburdened poor and middle class. As of 2020, Ibon Foundation estimated that the richest Filipinos own more wealth than the poorest 71 million Filipinos combined.

“Need to raise more revenues? Tax the super-rich,” said Ibon Foundation which first floated the idea of a “superrich tax” on those estimated to be worth at least P1.5 billion, at the height of the pandemic in 2020.

Africa said he was not surprised that the “superrich” do not dominate the list of the country’s top taxpayers, as they do not rely on just income to amass wealth. Income is but a fraction of their assets, as the superrich also own other and even more valuable properties such as real estate, shares of stock, as well as art and jewelry. They also have accountants, lawyers, and even political connections to help them avoid paying the right taxes.

Carlos Dominguez III, then finance secretary of the Duterte administration, had warned against the wealth tax bill filed by the Makabayan bloc in the previous Congress. House Bill No. 10253 proposed a wealth tax of 1-3 percent from those who have taxable assets of over P1 billion.

Dominguez then warned that such a wealth tax “will drive capital out of the Philippines.”

That there was no mention of the wealth tax during the Sona meant that the Marcos Jr. administration “is making poor and middle-class Filipinos pay for debt that they didn’t even benefit from,” according to Africa.

He is the first to admit, however, that the difficulties in designing, passing, implementing, and enforcing a wealth tax are “considerable.” Among the trickiest issues is determining what counts as wealth.

Similarly, Albay Rep. Joey Salceda had also pointed to the challenges in imposing a wealth tax. “Not all wealth is liquid. In theory, realized wealth is taxed by capital gains tax, but in very unequal societies, the wealthy do not even have to liquidate their big shares of wealth,” Salceda had said in reaction to the House bill.

The idea, Africa said, is to tax wealth and assets—net of liabilities—rather than just income. But estimating the extent of that wealth is “undeniably daunting,” and will require a team of “dedicated and incorruptible” lawyers, examiners, and experts, as well as cooperation with fiscal or financial authorities since part of the superrich’s wealth are usually kept abroad.

That it would be a challenge to force such a measure through Congress, which counts some of the superrich among its ranks, is an understatement. The ultrarich could also chafe at being singled out and could cite their contributions to the economy by way of the economic growth and jobs created by their industries and myriad of businesses.

Given that the poor and the middle class are already heavily burdened by the rising prices of goods, thereby weakening their purchasing power, the Marcos Jr. administration should exert utmost efforts to spare them from the brunt of new or heavier taxes, while making the country’s richest citizens contribute a bit more of their immense wealth in the best way they can.