Tax reforms now

Let’s look at the facts and not get carried away by emotion, or the wish to get reelected. What am I talking about? Taxes.

President Duterte is doing something his predecessor never attempted: to totally reform the tax system and put the people first. For decades we’ve suffered from inequitable, excessive, complicated taxes. Just try dealing with the absurd details on your tax forms as a start.

But filling out and filing tax forms make up a relatively minor issue. The real issue is the amount of tax you pay. It is excessive. A third of your salary gets ripped off you even if you are earning almost nothing. Companies are paying more here than anywhere in Asia. So why come here and create jobs?

In both cases, taxes have to be reduced. But (I hate clichés, but here goes) you can’t have your cake and eat it, too. If these reductions are made, the government loses some P170 billion. Just one thing: Mr. Duterte wants to double the spend on building new infrastructure, and we sure need that—urgently. Sit in traffic for endless hours and you’ll agree. Your lolo needs medical attention, and you can’t afford it. Your kids need to stay in school, but your salary is too low to pay their tuition.

So the Department of Finance will increase our take-home pay, but must pay for it elsewhere—by an increase in some others, where the wealthy pay more, and the less well-off pay less.

These other increases are essential if the government is to give us the services we demand. And it can only provide if it has the money, so I hope Congress can see that. What lawmakers will be concerned about—and you can’t blame them—is that they could lose votes if voters have to pay more for gas for their cars, jeepney fares, or food on their table.

It’s this I want to look at. There’s no such thing as an average person, but let’s use such a person as an example.

According to Finance Undersecretary Karl Chua, call center agents with a monthly income of P21,000 and with no dependents will save around P2,300 a month under the proposed tax reform plan. How? Under the existing tax rates, these call center agents have to pay P2,850 in personal income tax (PIT) a month, even with a personal annual exemption of P50,000 and 13th month pay and other benefits exempted from taxes.

Under the DOF’s new tax plan, they would pay only around P130 in income tax per month even if their 13th month pay and other benefits are factored in, as intended. This is because under the new tax plan, those earning P250,000 but not over P400,000 would have to pay only 20 percent of the amount in excess of P250,000 as PIT.

This loss to the government would be paid for mainly by the government’s proposal to adjust the fuel excise tax and expand the value-added tax base.

According to the DOF’s example, if we take into account the additional VAT that the sample employee would pay monthly for goods and services (estimated at around P258), and add the extra cost of bringing his or her car to work at P127, the employee would still have some P2,300 more to spend in a month.

The DOF statement added that “assuming that he or she commutes to work, the savings would also include an indirect subsidy of P1,500 because the impact on transport fares would only be minimal as a result of the cash cards that would be given to drivers and operators of public utility vehicles to offset the increase in fuel excise.”

This would bring the P2,300 up to P2,400 per month.

Without listing it all here, similar calculations made on all the other proposed increases will result in the average person paying more for various products and services due to tax increases on those, but he or she would still be well ahead with a significant increase in take-home pay.

The DOF has put together a well-thought-out package. I hope the members of Congress can accept that and not nitpick over it, and pass it before they go on recess on June 3 so President Duterte can announce it in his State of the Union Address. And we can have more money to spend soon. At the moment, there seems to be no urgency to help us.

So I will only vote for a member of Congress who moves with alacrity to pass these bills with urgency. The President should step in and encourage them to do so. Now!

E-mail: [email protected]. Read my previous columns: www.wallacebusinessforum.com.