The proposal in Congress to lower the tax rates for businesses and salaried workers is gaining traction, with the latest support coming from a group of tax experts.
The Tax Management Association of the Philippines (TMAP), which represents accountants, lawyers and other tax-related professionals, argues that lower rates will give ordinary citizens higher disposable incomes, make businesses more competitive in the region given their lighter tax burdens, and ensure that Filipino workers can compete with its neighbors in the Association of Southeast Asian Nations (Asean). Under existing laws, those earning at least P500,000 a year—the prevailing threshold for the top tax bracket—are taxed at 32 percent. This is significantly higher than Malaysia’s 11 percent, Thailand’s 10 percent, Vietnam’s 20 percent, and Singapore’s 2 percent.
The reduction in tax rates and the adjustment in the tax brackets will help increase the disposable incomes of individuals, which will turn into consumption and eventually create a multiplier effect for the economy, TMAP president Rina Manuel explained in an interview with the Inquirer last week. The government, in effect, will stand to generate more taxes from a vibrant economy if it lowers the tax rates on businesses and individuals.
The paper of the TMAP has been submitted to Sen. Sonny Angara and Rep. Miro Quimbo, the heads of the ways and means committees in their respective chambers of Congress.
The TMAP agrees that among ordinary employees, the highest earners should be subject to a maximum tax rate of 30 percent, and that a progressive tax range between 20 and 30 percent would be appropriate and more in line with regional standards.
As it is, it’s hard to figure out the Bureau of Internal Revenue’s strategy for it to meet its collection goals. One day it is looking into the suspected nonpayment of taxes by tiangge operators, the next day it is going after the allowances of government employees. It occasionally files tax evasion cases against some construction trader or gasoline station owner to prove that it is going after tax evaders.
Two weeks ago, the BIR official in Cebu took the publicity stand to announce that the agency’s office in Central Visayas wanted to go after the organizer and winners of the recent international triathlon on the island. This was despite statements from the organizers that the prize money of the winners in all divisions of the event had already been taxed—25 percent for foreign winners and 20 percent for locals.
Early this month, court workers and other government employees protested the BIR’s new taxes on civil service benefits. The groups led by Courage (Confederation of Unity, Recognition and Advancement of Government Employees) petitioned the Supreme Court to issue a temporary restraining order on the implementation of the regulation. Revenue Memorandum Order (RMO) 23-2014, which was issued by the BIR last June and became effective last month, subjects all benefits received by employees and officers of government agencies to taxes ranging from 30 to 32 percent. The BIR had said that it did not impose any new tax and that the RMO only clarified that, under Section 32 of the Tax Code, all compensations, whether in cash or in kind, whatever these may be called, are subject to income tax, and proper withholding taxes should be deducted and remitted to the BIR. It said the only exemption was up to P30,000 of the 13th month pay and bonuses.
Still, the question is why the BIR is choosing to focus its efforts on small taxpayers instead of channeling the bulk of its resources on making large tax evaders pay. Remember when the then Customs chief, Lito Alvarez, pointed to a big retailer’s warehouses as the drop-off point of dozens of containers filled with smuggled items? Isn’t that a good lead not only for Customs but also for the BIR to follow?
The BIR may be hard-pressed to meet its collection target, which it has been missing for years, but taking the funds from ordinary workers is not the answer. The move in Congress to lower the income tax rates deserves all the support especially from legislators for it to pass, and from President Aquino for it to be enforced into a law. Then perhaps economic activity will pick up and the government can actually generate more taxes. Besides, the working class deserves a break, especially now that prices of essential goods and services are steadily climbing.