A matter of justice

PARDON THE persistence, but the inequity in the personal income tax system is apparent. And a final push for the proposed law on a tax reform package may just be what is needed to make some members of Congress and President Aquino see the light.

President Aquino has been heard telling the public that although he would not allow new taxes under his administration, neither would he allow any tax cuts. His reason for not agreeing to change the income tax bracket system is that government would suffer a huge revenue loss. This, he argued, would adversely impact on the country’s investment grade ratings, which his administration had strived hard to improve.

The President must have been ill-advised about the issue: Reforming the present income tax structure, especially because it also affects the millions of salaried workers in both government and private sector, has become a matter of justice. If only for this reason, this issue deserves immediate action.

The President worries needlessly. The private sector is in consensus: What the government will lose from the adjustment of the tax brackets, it will recover through the revenue-generating measures included in the tax package. Besides, the income tax brackets will be indexed to inflation every three years.

The Tax Management Association of the Philippines (TMAP), which is composed of the country’s experts on tax matters, explains this very clearly. In fact, the group has been joined by 17 other business and labor groups in urging legislators to push through with the passage of the tax reform measures aimed at cutting income taxes and those that will allow government to collect more revenues.

They say, contrary to the view that reducing income tax rates will result in lower revenues and therefore increase the budget deficit, studies have shown that a cut in tax rates would, in fact, help spur tax compliance and broaden the tax base, aside from increasing disposable income for local purchases of goods and services. And this, in turn, would increase the government’s collections from consumption taxes.

We agree with Finance Secretary Cesar Purisima: A comprehensive proposal is needed to counterbalance piecemeal tax proposals in Congress that might erode tax revenues and negate the country’s recent efforts to promote sound fiscal management. True, the Department of Finance has been pushing a comprehensive tax reform package in Congress since 2014 to ease the burden of income taxpayers while also slapping new or higher taxes on consumption. The delay, again, comes from the fact that some members of Congress are agreeable to reduce income tax rates, but are against increasing other taxes, especially now that elections are just around the corner.

But there is one area in which the Aquino administration can focus on to compensate for any loss from an income tax rate cut. That is to collect taxes from those who should be paying them in the first place. A disclosure from Internal Revenue Commissioner Kim Henares is very telling: Only 400,000 of the 1.8 million self-employed in the country pay the correct taxes. She pointed out that the government would earn up to P300 billion more a year if previously foregone revenues from upper-tier, non-fixed income earners who pervasively evade tax payments could be collected.

That is more than what would be lost from adjusting the income tax bracketing system, which the government estimates at P150 billion—that is, if only taxpayers with an annual income of up to P1 million would be exempted from paying taxes.

To be sure, this is a more palatable measure of generating revenues than the opening of balikbayan boxes in search of taxable items.

Practically the entire private sector is supporting such tax reform package. Aside from the TMAP, among those that signed the letter of appeal for its immediate passage were the various foreign business chambers, the Management Association of the Philippines, the Philippine Chamber of Commerce and Industry, the Financial Executives of the Philippines and the Makati Business Club. The appeal specifically calls on President Aquino, too, to reconsider his position and listen to the voice of various sectors clamoring for income tax reform.

We join the appeal.

Congress and the President should heed it—not only because practically the whole business sector is united behind it, which doesn’t always happen; most importantly, the reform package will give back the fair, just and equitable income tax system that President Aquino’s bosses—the millions of salaried workers toiling every day to make both ends meet—deserve.