Monday, October 23, 2017
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business / Columnists

You’ve got the magic tax

business / Columnists
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You’ve got the magic tax

Just like death, there would be no escaping taxes, not for us down here in my barangay, not under this administration of the motorbiking Duterte Harley.

The first part of his sizable tax reform package, contained in House Bill 4774, the Tax Reform for Acceleration and Inclusion Bill Act, would likely breeze through the House of Representatives.

The distinguishing mark of bill is the long overdue cutback in individual income tax, but it will also impose new taxes to recover the cuts—and much more.

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According to the DOF, the first batch of reforms should bring in a net revenue gain of more than P160 billion a year—even with the income tax cuts at that.

By 2019, moreover, or after two years, the entire package would target a net gain of P370 billion a year, more than doubling and without a tax cut of any sort.

How would the administration intend to raise that kind of money—through magic? Guess what—even with the magic touch of Duterte Harley, somebody must still pay for that P370 billion.

On the “give” side, in other words, the Duterte administration would reduce the income tax, but on the “take” side, it would get much more in different ways.

Certain senators already indicated that the package would face closer scrutiny in the Senate, particularly the DOF proposal of a hefty increase in fuel taxes.

For us, there would be no escaping taxes under the Duterte administration, because we would have to pay for the P8-trillion project called “golden age of infrastructure” that the administration wanted to do in the next six years.

The economic team could all turn blue talking about cheap loans from abroad to cover bulk of the cost, but they still could not rely purely on borrowings.

As the IMF pointed out, even if the administration could increase the budget deficit from 2 percent to 3 percent of GDP, the increase in funding still could not cover the entire P8 trillion.

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The administration would still have to raise taxes, according to the IMF. There, we really could not escape taxes. Patay!

How then would administration raise more taxes equitably?

Well, the economic team wanted us to believe that the income tax cuts would be one way to spread the burden, since it would give tax breaks to the middle class. Hmm.

Surely the tax break would be most welcome. It would exempt those earning less than P250,000 a year, or about P20,000 a month, an amount even less than the income for a household to survive these days.

Based on government estimates, the “exempted” tax bracket would comprise more than 80 percent of the total number of taxpayers.

Still, they could never be the “middle class” in this country. The “middle class” would have tax breaks, too, but they would not be exempted. They would be on those in the next three tax brackets with yearly income of P250,000 to P2 million. They would be some 18 percent of the taxpayers.

Now they would have rates of 20 percent (yearly income of P250,000 to P400,000); 25 percent (P400,000 to P800,000); and 30 percent (P800,000 to P2 million).

Based on estimates in the business sector, a call center agent for instance would get a rate of 20 percent; an accountant, 25 percent; and a corporate lawyer, 30 percent.

Those examples would belong to the salaried class, not exactly highly paid, but they basically make up the middle class—the rather “thin” middle class.

Now, to offset the revenue loss from the tax cuts, the reform package would want to remove the VAT exemptions on house rentals, for instance, or that on low cost housing, or those priced at P2 million and above.

And who traditionally would rent apartments or buy low cost housing here? Right you are: the salaried class!

The package would also keep the VAT exemption on “sari-sari store” to help the poor, mainly the more than 80 percent of taxpayers already exempted from income tax.

On the other hand, it would continue to impose the VAT on convenience stores like “7-Eleven” and such, or the kind of establishments catering to the salaried class—the “thin” middle class. Really, call center agents would have no way to escape the VAT.

Now, what promises to be a heated debate in the Senate on the tax reform package, after the reform package breezes through the rubber stamp House, will likely center on the increase in fuel taxes of P6 per liter over three years.

Not the fairness of the entire package, boss?

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TAGS: Duterte Administration, Philippine business updates, tax, Tax Reform for Acceleration and Inclusion Bill Act
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