Just last month, congressional leaders promised to push passage of a bill increasing the amount of bonuses and benefits to be exempt from income tax.
Last week, another measure was filed in the Senate to help ordinary wage earners cope with the ever-increasing cost of living. Sen. Juan Edgardo Angara filed Senate Bill No. 2149 seeking to reduce the maximum individual income tax rate from the current 32 percent to 25 percent by 2017. The bill also aims to adjust the individual income tax brackets to benefit even those employees paying less than the maximum tax rate. It provides that the tax rate reduction will be spread over a period of three years starting in 2015 to cushion the revenue impact of the proposal.
As expected, Finance Undersecretary Jeremias Paul, during the March 5 hearing of the Senate ways and means committee, warned that the government would lose at least P43 billion by 2017 if the bill is passed. The Bureau of Internal Revenue also reiterated during the hearing that it would oppose any measure that would result in revenue loss. Last Friday, Internal Revenue Commissioner Kim Henares was also on television to say that the BIR was itself willing to adjust the individual income tax rates starting next year. The catch, however, is that Congress has to first pass pending tax reform bills, including the rationalization of the grant of tax incentives and the increased tax rates on mining.
In seeking support for his bill, Angara said the tax system should not only be a means to raise revenues for the state but should also be a way by which the government can promote its ends—ensuring the welfare of ordinary citizens. “I know the Aquino administration is big on inclusive growth especially in a country where there are vast income differences. We’re on the same team here. I think with smaller tax rates, we can have greater voluntary compliance,” the neophyte senator pointed out.
Salaried workers are the most compliant among taxpayers, not because they want to, but because the taxes due them are withheld at source. Their employers are required by law to deduct the taxes from their take-home pay. The Philippines, as Angara noted, has the third-highest individual income tax rate ceiling, after Thailand’s 37 percent and Vietnam’s 35 percent. The highest income tax rate of Cambodia is 20 percent; Indonesia, 30 percent; Laos, 24 percent; Malaysia, 26 percent; Burma (Myanmar), 20 percent; and Singapore, 20 percent.
Angara also noted that the Philippines’ current individual income tax structure has remained unchanged since 1997 even when inflation has risen steadily. The increase in consumer prices hit a two-year high in January as the country faced a supply disruption caused by the devastation of Supertyphoon “Yolanda” in central Philippines. Inflation accelerated in January as the typhoon damaged farms and destroyed public infrastructure and private property in the Visayas in November 2013. The resulting disruption of agricultural production and business activities in the affected areas caused a spike in overall domestic prices. The higher inflation also came along with the weakening of the peso to its lowest in three years. The peso had hovered in the 45-to-a-dollar territory since the middle of January before recovering to the 44 level in the second week of February. Meanwhile, inflation improved marginally in February to 4.1 percent from 4.2 percent in January.
We expect the Angara bill, being a popular measure, to get enough backing in the Senate. However, there were reports that the counterpart committee in the House of Representatives was looking into increasing the value-added tax to compensate for the potential revenue loss arising from lowered individual income tax rates. Angara has warned that increasing the VAT could negate whatever tax relief salaried employees would get from his bill.
Legislators should back the bill reducing the tax rates for individual taxpayers because this will go a long way in helping the middle class, which constantly struggles to cope with rising prices, not to mention the worsening traffic in the metropolis. As one comment to the Inquirer report on the Angara bill noted, the proposed tax relief would enable ordinary workers to truly benefit from their hard-earned money, instead of it going to the pockets of corrupt people in the government.