‘MWBE’ for high, low earners

WHO SHOULD tax reform favor—a worker buying an occasional “happy meal” for his family or a businessman buying cars for everyone in his family?

Financial experts want maximum income tax reduced to 25 percent. Hypothetically, if an executive annually earning P3,000,000 and taxed P888,703, gets a two- bracket reduction from 32-25 percent, his tax drops to P709,143. That’s a P179,560 reduction. On the other hand, if an employee, annually earning P200,000 and taxed P1,814, gets a two-bracket reduction from 20-10 percent, his tax drops to P7,707. He gets P4,107 (like bread crumbs for Lazarus), while Dives gets full loaves, courtesy of a tax reduction scheme that adds more to the abundance of those who have much, and provides little to those who lack.

In 2008, Republic Act No. 9504 created salary distortions that enabled tax-exempt minimum wage earners (MWEs) to earn more than their slightly higher-paid supervisors and coworkers who were not tax exempt, causing income inequity. This salary distortion pushes employers to circumvent this law by making its potential beneficiaries taxable (like my colleagues who got P1 added to their minimum daily wage to nullify tax exemption), cleverly retaining government tax revenue by precluding potential MWEs. A rise in nonissuance of BIR form 2316 to employees may hint that the real number of tax exempt workers is smaller than the official figure. Go figure.

There’s equity in giving both the high- and low-income earner the same base amount of tax relief. Instead of dropping maximum tax to 25 percent, the minimum wage should be the base tax exempted income for all income earners (e.g., P491 x 365 days = P 179,215 minimum wage base exemption (MWBE). Add MWBE to our tax table system and the income earner of P3,000,000 gets taxed P831,355 from P888,703 while P200,000 gets zero tax from P11,814. This narrows the income gap between the rich and the poor, whereas a 32-25 percent tax cut widens it.

MWBE naturally offsets RA 9504’s salary distortion effect and tax table “bracket creep” (increasing minimum wage suppresses “bracket rise”). Minimum wage becomes more significant than ever before. Also, corporate distaste for increasing minimum wage may change some when their tax exemption is based on it. To raise employment and capital committed to our country, let’s formulate these into multipliers that can raise MWBE to encourage corporate proportions instead of an outright tax cut.

Can we forego VAT increase to offset tax cuts? Sen. Alan Peter Cayetano said: “In every peso collected, P2 is not collected, meaning tax evasion and smuggling are bigger corruption issues. P2 trillion to P4 trillion does not get to the government.”

With this new government hell-bent on crushing crime and corruption, collecting just half of the uncollected P2 would more than compensate for tax cuts. Let’s not push up the price of a “happy meal.”

—ERNIE LAPUZ, [email protected]