Pres. Benigno Aquino III. AFP FILE PHOTO
Tax managers on Saturday urged President Benigno Aquino III to reconsider his opposition to reduced income tax rates among wage earners, and said that his fears that lower taxes would lead to a budgetary deficit and negative credit ratings from international agencies were “unfounded.”
In a statement, the Tax Management Association of the Philippines (TMAP) said that “(l)ower income taxes increase disposable income by transferring money from government hands back to the consumption budget of Filipino families, who will likely spend more on goods and services. This additional spending, in turn, fuels the economy and attracts more taxes.”
Quoting economists, the TMAP said the “the real issue (was) the government’s perennial underspending.”
“The lower deficit is not due to increased collection efficiency, but is due to underspending which is ill-timed for a country desperately trying to generate jobs, build world-class infrastructure and improve the day-to-day lives of its people, majority of (whom are) mired in poverty,” the group of corporate tax practitioners and tax consultants said.
TMAP noted that the Department of Finance (DOF) itself earlier said that “for every peso of additional income, at least 60 centavos (or 60 percent) will be spent by way of consumption for goods and services.”
“So if the government will underspend anyway, why not take the opportunity to leave the spending to Filipino families?” TMAP president Terence Conrad H. Bello said.
Last week, the Joint Foreign Chambers of the Philippines as well as the Foundation for Economic Freedom said they support pending measures in the legislative branch aimed at slashing personal individual tax rates.
Tax reform package
The group of tax managers said the DOF should not view income tax reform “as mere tax cuts that will only undermine the tax take of the government.”
It noted that the DOF’s projection of P30 billion in foregone revenues from reduced tax rates is equivalent to a mere 1 percent of the proposed 2016 national budget of P3.002 trillion.
“The impact of the supposed revenue loss of P30 billion from lower income taxes is very minimal from a budgetary standpoint, but will significantly affect and uplift the lives of millions of salaried workers and their families,” the TMAP said.
Aside from the pending bills in Congress and the Senate looking to reduce the income tax rates, the DOF has been pushing for a comprehensive tax reform package that would drastically ease the burden of income tax payers while slapping new or higher taxes on consumption.
Among the proposals in the DOF tax reform package is increasing the tax-exempt cap on incomes of individuals and small businesses, while reducing to about 25 percent the corporate income tax ceiling from the current 30 percent.
To compensate for the estimated loss of P150 billion in revenue if income earners of up to P1 million were exempt from paying taxes, the value-added tax (VAT) rate could be increased to 14 or 15 percent from the current 12 percent, the DOF said. VAT coverage could also be expanded or the excise tax on oil products jacked up, the agency added.
Ease bank secrecy laws
Also part of the DOF package are introducing bills to ease restrictions in the bank secrecy law for tax purposes and making tax evasion a predicate crime.
According to DOF estimates, only 400,000 of the 1.8 million self-employed in the country pay the correct taxes.
In a letter to Senate President Franklin Drilon last November, a copy of which was obtained by the Inquirer, Finance Secretary Cesar V. Purisima urged Congress to consider its proposed comprehensive tax reform package for legislation at the soonest possible time this year.