Overtaxed

Calls to lower the income tax rates on ordinary workers have again been sounded in Congress, all seeking to unburden those who have to give as much as a third of their salaries to the government.

Rep. Rodrigo Abellanosa (2nd district, Cebu City) filed last week House Bill No. 4372, which seeks to drastically reduce the income tax of individuals to 15 percent from the current 32 percent. He argued that his proposal would translate to higher take-home pay for income earners that, in turn, would help them cope with the ever-increasing costs of living. Eventually, this would make local employment more attractive and help curb the migration of Filipino workers to seek opportunities abroad.

Abellanosa’s bill is the third such measure filed in the House this year. Last March, Rep. Magtanggol Gunigundo (2nd district, Valenzuela City) filed HB 4099, which seeks to reduce individual and corporate income tax rates to

15 percent from the current 32 percent and 30 percent, respectively. Gunigundo said his proposal would reduce the number of Filipinos who do not pay taxes as lower tax rates would mean higher compliance levels. He cited another advantage of having a 15-percent income tax rate: the stimulating effect it would have on the economy, by providing individual taxpayers with more after-tax or disposable income. This income, he said, could either be saved or spent on services or goods subject to the value-added tax, which could somehow offset the revenue loss that the government would have to shoulder from the lower income tax rate.

Last April, Rep. Angelina Tan (4th district, Quezon) filed HB 4278, which also seeks to reduce the income tax rate on individuals to 15 percent. She argued that aside from helping the workforce cope with inflation and the higher costs of living, it was necessary so the Philippines can fully benefit from the integration of the economies of the Association of Southeast Asian Nations (Asean) in 2015.

In the Senate, Sen. Juan Edgardo Angara is pushing for the passage of a less drastic bill that seeks to reduce the individual income tax rate to 25 percent by 2017. He suggested that the reduction be spread over a three-year period starting in 2015, to soften the revenue impact of the lower tax rates.

As expected, the Bureau of Internal Revenue is against all these bills. At one House hearing, finance officials argued that the government would lose much-needed revenue if the bills would be passed. The BIR also reiterated during the hearing that it would oppose any measure that would result in revenue loss.

But there are arguments to be made for lowering the tax rates on ordinary workers. For one, as Angara noted, the Philippines has the third-highest individual income tax rate in Asean (after Thailand’s 37 percent and Vietnam’s 35 percent). The highest tax rate of Cambodia is 20 percent; Burma (Myanmar), 20 percent; Singapore, 20 percent; Laos, 24 percent; Malaysia, 26 percent, and Indonesia, 30 percent.

Perhaps a more important reason for giving ordinary taxpayers a tax break now is so the government can help the workforce keep up with the ever-increasing costs of basic goods and services. Inflation in May, as reported last week by the Philippine Statistics Authority, rose to its highest in 30 months. The prices of essential goods and services have constantly been on the rise, yet there has been no significant increase in wages in the past several years. Reducing the income tax rates on individuals is one sure way of helping ordinary workers keep up with the costs of living.

It’s also time for Congress to revisit tax rates considering that the last time the legislature reviewed these was in 1977. Since then, consumer prices have significantly increased, eroding the earnings of taxpayers, particularly salaried workers.

The BIR has estimated that it stood to lose about P34 billion if lower tax rates were to be implemented until 2017. Gunigundo suggested another way of looking at it: as a P34-billion gain for taxpayers that would translate to additional disposable income of P34 billion for salaried workers.

And, of course, all these proposals to provide relief to an overtaxed working class would be less of an issue today if only our taxes did not end up lining the pockets of corrupt officials.