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Tuesday, October 22nd, 2019

Deceit in lower income tax plan

by October 16, 2016 General

Tita C. Valderama

Tita C. Valderama

TAXPAYERS should watch keenly how legislators will “reform” the country’s tax structure to make sure that they don’t end up getting fried in their own lard, so to speak.

At first glance, the draft of the initial tax reform package, which Finance Secretary Carlos Dominguez presented to the House of Representatives a few weeks ago, looks enticing. For one, it seeks to reduce the income tax rate, meaning, workers may receive a higher take-home pay because the withholding tax deduction will be smaller if it is implemented.

Lowering the income tax rate for personal and corporate taxpayers was one of the campaign promises of President Rodrigo Duterte. He vowed to work toward a simpler, more equitable and more efficient tax system that could foster investment and job creation. He emphasized it again in his State of the Nation Address (Sona) in July.

The Philippines currently has the second highest tax income rate among its peers in Southeast Asia (at 32 percent, next to Thailand’s and Vietnam’s 35 percent), and the highest corporate tax rate (at 30 percent, following Indonesia’s and Malaysia’s 25 percent). Singapore, the most prosperous in the region, has the lowest income tax rate at 20 percent, and corporate tax at 17 percent, according to data from the Joint Foreign Chambers of the Philippines.

The Duterte Administration aims to adjust personal income tax brackets and gradually bring down the maximum rate to 25 percent from the current 32 percent, but, at the same time, to raise the rate to 35 percent for those earning P5 million or more annually.

This restructuring scheme is supposed to favor the low and middle-income earners, while persons earning roughly P384,000 or higher annually will have to pay more.

According to Rep. Romero Quimbo of Marikina City, chairman of the ways and means committee in the previous Congress, the DoF proposal was to exempt from income taxes those individuals with a gross income of P250,000 a year, or P20,833 a month.

But don’t be deceived by the exemptions or lowering of the income tax rates because other deductions would be taken from your earnings in some other ways.

While the tax reform package includes lowering the withholding tax on income, it imposes other taxes and cancels some privileges.

Where would the government get the P600-billion additional revenues it hopes to raise until 2019 if it would not impose higher or take back previously-granted exemptions in taxes?

According to Rep. Edcel Lagman of Albay, the tax reform package “taxes holiday pay, overtime pay, night shift differential pay, hazard pay and 13th month pay received by low-income earners; and repeals the VAT (value added tax) exemption of people with disabilities and senior citizens.”

It likewise seeks to scrap the personal tax exemptions now enjoyed by working spouses.

At present, an employed spouse is getting a personal exemption of P50,000 plus P25, 000 for each of a maximum of four dependents, or a total of P150,000.The other spouse, if she or he is employed, is entitled to another P50,000 in personal exemption. These will all be gone under the proposed package.

Also, the plan to raise taxes on brand new motor vehicles would raise prices of cars in a way that could hurt middle- and upper-income earners.

In the DoF proposal, taxes would go up from 2 percent to 5 percent for automobiles priced below P600,000; 20 percent for those selling at P600, 000 to P1.1 million; 40 percent for those priced at and between P1.1 million and P2.1 million; and 60 percent for vehicles selling above P2.1 million.

“With the prices of automobiles becoming prohibitive, car users will be constrained to continue using their old environment-unfriendly vehicles (while) car distribution companies will suffer lower sales (resulting) in the layoff of workers,” Lagman said, prompting him to describe the reform package as “anti-poor and anti-marginalized.”

What the DoF submitted to the House was just the first of four packages of its proposed tax policy reform program.

The DoF explained in a statement that the first package included the following: restructuring the personal income tax system; expanding the value-added tax or VAT base by reducing exemptions; raising excise taxes on oil products; and restructuring the excise tax on automobiles, save for buses, cargo vans, jeeps, jeepney substitutes, special purpose vehicles, as well as trucks.

The P10 excise tax on lubricating oils and greases, waxes and petrolatum, naphtha regular gasoline, leaded premium gasoline and aviation turbo jet fuel; and P6 on processed gas, denatured alcohol, kerosene, diesel, and liquefied petroleum gas, asphalts and bunker fuel can be tricky.

For instance, the P6-per-liter tax imposition on diesel could result in higher fares and transport cost for consumer products, which, in turn, would translate into higher consumer prices.

Despite the proposed tax-free amount of earnings, millions of workers in the private and public sectors would still be paying income tax, including the lowest-paid school teachers receiving a basic monthly salary of P19,077, plus a midyear bonus and a 13th-month pay, for a total of P267,078 a year, Quimbo cited.

Dominguez had explained that the tax measures under the reform package were designed to make the rich pay more and to give the poor some relief.

The way it looks, though, the tax reform package will give low and middle-income earners a pittance amount in lower withholding tax on income but will be taking back a higher amount in the form of taxes on consumer goods and scrapping tax benefits taxpayers have been enjoying.

With a “super majority” in both the Senate and the House, public vigilance on the pieces of legislation they are churning out is critical.

It is much like guarding against a situation in which Filipino taxpayers will end up being fried in their own lard. Ginigisa sa sariling mantika!