Proposals to amend the personal income tax schedule appear to be
well-justified. However, these proposals should include measures that will
allow government to recover the revenue loss from lower income taxes.
Dr. Rosario Manasan, senior
research fellow of state think-tank Philippine Institute for Development
Studies (PIDS), said at a seminar sponsored by the Philippine Senate, that
government should look for new revenue measures to compensate for the projected
revenue loss that will arise as a result of the implementation of any of the
various proposals to restructure the personal income tax.
Currently, there are several
income tax reform proposals pending in both houses of Congress. All of them,
according to Dr. Manasan, have the same objective of addressing the phenomenon
of bracket creep, which results from “non-indexation to inflation of personal
income tax brackets”. Simply put, bracket creep occurs when employees’ income
increases over time as a result of inflation. This pushes them to pay higher taxes,
but their purchasing power remains the same. The Philippines has not adjusted
its personal income tax system since 1998.
Dr. Manasan also noted that
the proposals all attempt to reduce the country’s high personal income tax rate
relative to its neighbors in the Association of South East Asian Nations
(ASEAN). In particular, the Philippines’ top marginal personal income tax rate
of 32 percent is higher than that of all the ASEAN member-states with the
exception of Thailand and Vietnam.
The proposals to amend the
personal income tax law assessed in the PIDS study were Senator Ralph Recto’s
Senate Bill 716, Senator Bam Aquino’s Senate Bill 1942, Senator Sonny Angara’s
Senate Bill 2149, Rep. Miro Quimbo’s House Bill 4829, and Rep. Neli Colmenares
and Rep. Carlos Zarate’s House Bill 5401. Similar proposals have been raised by
the private sector, most notably the Tax Management Association of the
Philippines (TMAP).
According to Dr. Manasan, Mr.
Recto’s SB 716 and Mr. Quimbo’s HB 4829 will reform the personal income tax
system by adjusting the tax brackets according to changes in consumer price
index between 1998 and 2015. Meanwhile, Mr. Aquino’s SB 1942 will exempt
incomes below PHP 60,000 and raise the top bracket income threshold to PHP 12
million.
Mr. Angara’s SB 2149 will
affect changes in tax rates in phases over a span of three years, reducing the
bottom marginal tax rate from 15 percent to 10 percent and the top marginal tax
rate from 32 percent to 25 percent. Under this proposal, all incomes below PHP
20,000 will also be exempted from taxation.
Messrs. Colmenares and
Zarate’s HB 5401 exempts income below PHP 396,000 and raises the top threshold
to PHP 2 million.
Dr. Manasan noted that all of
the proposals to amend the personal income tax schedule are clearly progressive
given that the associated effective tax rates computed for various taxable
income levels rises as the corresponding taxable income increases.
However, she pointed out that some proposals are less progressive, particularly
Messrs. Angara’s SB 2149 and Quimbo’s HB 4829.
Dr. Manasan’s analysis shows
that the tax liability in Mr. Angara’s bill actually increases for those in the
lower bracket during the first two years of its implementation while Mr.
Quimbo’s bill increases tax for nonwage tax payers below the PHP 500,000 mark.
“As for losses in government
revenue, the costliest bills are Mr. Quimbo’s HB 5892 and Messrs. Colmenares
and Zarate’s HB 5401, which is estimated at PHP 130 billion and PHP 232
billion, respectively. In contrast, Mr. Recto’s SB 216 will result in a revenue
loss of around PHP 52 billion for the government while Mr. Angara’s SB 2149
will cost the government PHP 10 billion in the first year and PHP 61 billion in
lost revenues for the third and final year,” Dr. Manasan explained.
PIDS’ fiscal expert noted
that whichever proposal passes into legislation, government revenue will
suffer. One way to for government to recover the revenue loss is to increase
the value-added tax (VAT) rate. For instance, Dr. Manasan pointed out
that a one-percentage point increase in the VAT rate is enough to recover
approximately PHP 26.25 billion loss in revenue from other taxes such as the
personal income tax. However, she noted that raising the VAT rate would
nullify the increased purchasing power resulting from the modification in the
personal income tax rate schedule, especially among the poorer segment of the
population.
“Increasing the VAT will only
recover revenue loss to a certain point, assuming that the increase in
disposable income is fully spent. Moreover, the poorest will remain the hardest
hit if the price of goods increases proportional to the VAT,” Dr. Manasan
underscored.
Another option, she said, is
to levy an excise tax on sugar-sweetened beverages, which based on the
computation of the Department of Finance, will give government an additional
PHP 30 billion yearly. Alternatively, government can apply an additional
variable excise tax rate on petroleum products or increase the road user’s tax
and motor vehicle user charge. According to Dr. Manasan, both measures will
have a positive impact on the environment through reduced pollution and
congestion.
Meanwhile, former TMAP
President Rina Manuel remarked at the lecture that the estimated billions in
losses will be a “real price to pay.
Apart from compensatory
measures, Ms. Manuel thinks that taxation could be largely improved in three
possible ways: improving the collection system, and establishing a “specialized
tax payer program” for the self-employed and for the professionals.
As the presidential election
looms, tax reform has increasingly become a critical election issue. Tax reform
is overdue, and experts opine that a comprehensive tax reform should be a top
priority for the presidential candidates. “I think our candidates should make a
stand on this issue so that voters know what they are voting for.” Dr. Manasan
concluded. (PIDS)
Aside from compensatory measures, Ms. Manuel feels that tax collection could be generally worked on in three potential ways: further developing the assortment framework, and laying out a "specific citizen program" for the independently employed and for the experts: waiting-chair
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