President Aquino seems to have misunderstood what the income tax reform bill is all about. It is not about reducing or changing the tax system. It is purely to do what politicians should have done in the first place: Set taxes based on current, not historical, salaries.
The 1997 law set sensible (albeit too high) taxes based on income earned. Those who earned little paid little, while those with high incomes paid higher taxes, as they could afford it. Today the poorly paid pay the top tax rate, at a rate they just can’t afford, and they shouldn’t be forced to pay. It’s unconscionable.
The President is quite right. The government shouldn’t be adjusting tax rates this close to the elections as it’s obvious what would happen: Taxes would be set at popular levels regardless of the impact on government revenues. It would be the problem of the next administration, after all, so who cares?
But this is not a change; it’s but a necessary and fair adjustment. Consider a Makati employee earning a monthly salary of P30,000 today. His salary’s equivalent in 1997 was P12,600, and he paid a tax of 16.7 percent or P2,100. Instead of paying that same equivalent rate of 16.7 percent today, or P5,000, that hardworking employee is now paying 23 percent, or P6,900, in income tax. It’s an added P1,900, which his family needs and to which it should be entitled.
Employees are paying a higher rate than Congress intended. It’s a simple mistake that needs to be corrected—nothing more and nothing less.
To be cynical about it, doesn’t the President want the administration candidate, Mar Roxas, to win in 2016? I praise him for risking this by not making populist decisions; it speaks highly of his character. But this is not a populist law (even if it would be popular—a very different thing); this is an adjustment to correct an error made in 1997.
Congress has a mere 40 days left and is hard pressed to get a quorum, so passage of the tax reform bill might be difficult. It needs the President’s prioritization to have any chance. It should be given that chance. The hardworking workers more than deserve it.
There are some other bills where pressure from the President would help, and pressure he should apply in an actively involved way. These involve freedom of information (FOI), antismuggling, customs and tariff modernization, amendments to the Right-of-Way Act, and the one I care most about, the creation of a Department of Information and Communications Technology (DICT).
Mr. Aquino promised good governance and transparency in his campaign for the presidency. He promised that the FOI bill would be of high priority, and he has not met this promise. The Senate has approved the measure on third and final reading, but it is still pending on second reading in the administration-dominated House of Representatives. It has been languishing in Congress for more than 20 years now. Is it going to take another 20 before it gets passed?
The proposed Customs Modernization and Tariff Act adopts policies and procedures that are in line with global standards for customs services and overhauls the Bureau of Customs’ processing of exports and imports from its current graft-susceptible, person-to-person format to an automated system. Computers have no hands to accept bribes. Related to it is the antismuggling bill that increases the penalty for outright and technical smuggling and empowers the Commission on Audit to perform post-entry audits. The passage of these two measures is crucial given the huge revenue losses—industry experts estimate around P200 billion per annum—brought about by smuggling. That P200 billion would cover any loss from salary tax adjustments.
The measure amending the Right-of-Way Act has been approved by the House on third and final reading, but its counterpart in the Senate is still pending on second reading. The bill hastens the implementation of vital infrastructure projects as it prohibits the issuance of temporary restraining orders on infrastructure projects and provides for a flexible/open rate on return of investment. It mandates the automatic grant of administrative-delegated franchises and exempts projects from local taxes. The slowness to get infrastructure going has been a major failure of this administration. This bill is aimed at addressing that snail’s pace.
Then there’s one bill that has been approved on third and final reading in both the Senate and the House—the measure creating the DICT. To further hasten its approval, the two chambers have agreed to dispense with going through a bicameral process. But the President might veto the measure as he doesn’t agree with it although business overall strongly supports it. He has not explained why he is against it despite business’ recognition of the need for this new, dynamic industry that will dominate economies everywhere in this rapidly changing, wondrous world we live in. Lawmakers say they, too, recognize the necessity of this measure.
So we (and “we” is an awful lot of people) hope he’ll sign it, or, at the worst, let it lapse into law, recognizing that Congress’ wishes should be accepted. If he vetoes it, it will just delay, and not stop, passage. It will pass, either in the next administration or the next. It’s an inevitability. But the longer it is delayed, the further the Philippines will fall from its perch near the top, where it is today. It is a major legacy that the Aquino administration can leave for the next president to utilize, to put the Philippines into a leadership role in IT in the world.
Five bills, 40 days: Let’s just do it.
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E-mail: wallace_likeitis@wbf.ph. Read my previous columns: www.wallacebusinessforum.com.