Last week, congressmen
reportedly gave up on their bid for tax cuts after repeated indications of
opposition from Malacañang.
We can hardly accuse Congress of not trying, with not less than 10 bills filed proposing tax reform. Various versions of these bills have appeared and been discussed in due course. Not one of them has been approved by the President.
Many are asking why securing the President’s
approval is difficult. Did President Benigno S. C. Aquino III not promise to
listen to his “bosses,” and does Congress not represent the voice of these
bosses -- the Filipino people?
The main stumbling block to the approval of the proposed tax reform appears to be the anticipated loss of government revenue without compensatory measures to replace the lost collections. According to the latest version of the proposed bill on individual income tax, the top tax bracket paying 32% will now apply to those with an annual income of more than P1 million as against the current threshold of only P500,000, dating back to 1997. The lower brackets were likewise recalibrated to reflect the impact of inflation. The Executive department believes that the updating of individual income tax brackets would slash the government’s revenue significantly, on the expectation that most Filipinos will see their income tax payments reduced.
Supporters of the reform see the alleviation of the plight of the working class by increasing take-home pay. The latest version of the proposed bill would see an employee earning P20,833 per month (or P250,000 per year), shift to a bracket charging 20%, rather than 25%. While 5 percentage points may not seem much, to the working classes this represents a significant amount.
It has also been argued that foregone government revenue will be replaced by increased individual spending, which the government will benefit from in the form of more transaction taxes like value-added tax. Any lost government revenue will flow back into the economy and eventually find its way into the treasury.
To add a further argument, higher take-home pay will make the Philippines competitive in the era of accelerating international trade and investment. More money in employees’ pockets will reduce pressure on employers to raise wages, keeping labor costs down and making the country more attractive to investors. These investors could ultimately boost our economy.
These are of course some of the more obvious points raised in what has been along drawn-out debate. Unfortunately, the Executive department seems to be viewing the proposed reform from a different perspective. Pro-tax reform economists, accountants, lawyers, data analysts, and other experts have said their piece, but it appears they cannot good news about tax reform this holiday season.
In any event, do we really need any more experts to say that the 18-year-old 1997 Tax Code income tax bracket is outdated? Is it not obvious that the value of salaries has changed significantly since 1997?
Set aside the statistics on foregone revenue... Setting aside the politics... Remove counter-arguments involving international trade... and at the end of the day the reform is about social justice, an issue that connects with many Filipinos.
The 16th Congress will recess between Dec. 19 and Jan. 18. Next year’s Congressional work will be disrupted by campaigning. Any last-ditch efforts by members of Congress will need to be done within a very limited time. Will they try to convince the Executive department once more? Will they decide to override Presidential opposition? Could they do something else? We don’t know yet.
We can take comfort in the fact that certain members of Congress have vowed to re-file the bill when the next administration comes along if nothing happens to the current legislation. Many hope that the reform will be given high priority, possibly to take effect within the 2016 tax year. After all, the voice and interest of the Filipino people, as represented by the Congress, ought to be heard in a republic like ours.
When it comes to reducing taxes, we are not giving up.
Olivier D. Aznar is a partner with the Tax Advisory and Compliance division of Punongbayan & Araullo.
The main stumbling block to the approval of the proposed tax reform appears to be the anticipated loss of government revenue without compensatory measures to replace the lost collections. According to the latest version of the proposed bill on individual income tax, the top tax bracket paying 32% will now apply to those with an annual income of more than P1 million as against the current threshold of only P500,000, dating back to 1997. The lower brackets were likewise recalibrated to reflect the impact of inflation. The Executive department believes that the updating of individual income tax brackets would slash the government’s revenue significantly, on the expectation that most Filipinos will see their income tax payments reduced.
Supporters of the reform see the alleviation of the plight of the working class by increasing take-home pay. The latest version of the proposed bill would see an employee earning P20,833 per month (or P250,000 per year), shift to a bracket charging 20%, rather than 25%. While 5 percentage points may not seem much, to the working classes this represents a significant amount.
It has also been argued that foregone government revenue will be replaced by increased individual spending, which the government will benefit from in the form of more transaction taxes like value-added tax. Any lost government revenue will flow back into the economy and eventually find its way into the treasury.
To add a further argument, higher take-home pay will make the Philippines competitive in the era of accelerating international trade and investment. More money in employees’ pockets will reduce pressure on employers to raise wages, keeping labor costs down and making the country more attractive to investors. These investors could ultimately boost our economy.
These are of course some of the more obvious points raised in what has been along drawn-out debate. Unfortunately, the Executive department seems to be viewing the proposed reform from a different perspective. Pro-tax reform economists, accountants, lawyers, data analysts, and other experts have said their piece, but it appears they cannot good news about tax reform this holiday season.
In any event, do we really need any more experts to say that the 18-year-old 1997 Tax Code income tax bracket is outdated? Is it not obvious that the value of salaries has changed significantly since 1997?
Set aside the statistics on foregone revenue... Setting aside the politics... Remove counter-arguments involving international trade... and at the end of the day the reform is about social justice, an issue that connects with many Filipinos.
The 16th Congress will recess between Dec. 19 and Jan. 18. Next year’s Congressional work will be disrupted by campaigning. Any last-ditch efforts by members of Congress will need to be done within a very limited time. Will they try to convince the Executive department once more? Will they decide to override Presidential opposition? Could they do something else? We don’t know yet.
We can take comfort in the fact that certain members of Congress have vowed to re-file the bill when the next administration comes along if nothing happens to the current legislation. Many hope that the reform will be given high priority, possibly to take effect within the 2016 tax year. After all, the voice and interest of the Filipino people, as represented by the Congress, ought to be heard in a republic like ours.
When it comes to reducing taxes, we are not giving up.
Olivier D. Aznar is a partner with the Tax Advisory and Compliance division of Punongbayan & Araullo.
Let’s Talk Tax : Olivier D. Aznar
Economy : Business World
December 1, 2015
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