PH income tax system is the most inequitable in the world
Sometime last year, two prominent lawmakers came out in the news announcing their respective intentions to improve the country’s existing income tax system for individual taxpayers.
Sen. Ralph Recto wanted the portion of the customary 13th-month pay or annual employee’s bonus that is exempt from tax to be increased from the present P30,000 to at least P50,000, if I remember correctly, or even more.
Sen. Sonny Angara looked into reducing the maximum rate of 32 percent in our tax table to probably 25 percent or thereabouts—to be more or less comparable with the average rates obtaining in the region.
Question: What do these two proposals have in common? Answer: Both lawmakers are looking only for the benefit of the high-income group—to which they belong! Alas and alack, when can they learn to think, albeit for once, of the relative welfare of the lower class?
Meanwhile, has anybody ever realized the plain truth that ours is probably the most inequitable individual income tax system in the whole world? Consider this: A and B are two individual taxpayers, both working six days a week, with two dependent children each. Their only difference is that A is an employee or a minimum wage earner of say, P456 daily (the amount now prevailing in Metro Manila), while B is a sole proprietor-owner of a small sari-sari store that averages P2,280 in daily gross sales which, in turn, goes down to a measly P456 in net taxable earnings per day, after allowing for some 80 percent in combined cost of sales and allowable deductible operating expenses.
Since compensation and business incomes are both subject to the same tax table, their annual income tax return would essentially be made up of the following components: (a) gross income of P142,272, that is, P456 x 6 days/week x 52 weeks/year; (b) less P100,000 for personal and additional exemptions, or P50,000 for being married plus P25,000 x 2 dependents; (c) net taxable income of P42,272; and (d) income tax due of P4,341 or P2,500 for the first P30,000 plus 15 percent of P12,272, as per tax table.
However, the law says that a minimum wage earner is exempt from withholding, and hence, income, tax. So, A pays zero tax and B pays P4,341, even if both have earned exactly the same amount of income. If this is not monumentally inequitable, I do not know what is!
Moreover, here’s the rub. Wait until A’s boss gives him a wage raise of at least P10 per day, equivalent to P3,120 per year. Having thus ceased to be a minimum wage earner, he suddenly pays income tax, subject to monthly withholding, in an amount that is practically much more than that which he has brought home out of his daily wage rate during the year. Well, that one is not only inequitable; it is the irony of all ironies!
—RUDY L. CORONEL,