‘Creative’ ways to tax wealth pushed
As experts push to slap taxes on wealth-creation to recover massive pandemic-induced revenue losses, legislators crafting tax laws in the Philippines have resorted to “creative” ways of squeezing additional money from taxpayers without further burdening them amid a recession.
According to Jim Brumby, a senior governance adviser at the Washington-based World Bank, “if ever there were a time that wealth taxes could help, it may be now” even as he noted most countries had been “extremely hesitant” to introduce these levies.
In a Jan. 6 blog, Brumby said taxing wealth would address five global disruptions, namely: “out-of-hand” inequality; a global fiscal “hole” as the pandemic pushed countries to massive debt; a stock market that had gone into a frenzy for stocks that offer a dependable and growing revenue bundle or so-called “rundles”; difficulty now for the “super-rich” to hide their money in tax havens, and a fraying social fabric.
“Now is the time to consider a wealth tax. It can support fairness and deliver serious recurring revenue. This can help close the inequality gap, plug the fiscal hole and win back trust. According to forthcoming work at the World Bank, taxpayer compliance is bolstered by rebuilding trust, and an important element of that trust comes from the sense that taxes are fair,” Brumby said.
“Rather than seeing the resolution of the impending public finance crisis as a problem where ‘something’s gotta give,’ an annualized wealth tax provides a way to meet at least a part of the problem through ‘someone’s gonna give,” Brumby added.
For Albay Rep. Joey Salceda, who chairs the House ways and means committee from which tax measures emanate, “the principle of taxing wealth is elegant and sound.”
“We have to penalize hoarding wealth and not making it useful for national development. I have always said that our largest state failure is our failure to tax the rich,” Salceda told the Inquirer.
However, Salceda pointed to some challenges in imposing wealth tax—for one: “Not all wealth is liquid. In theory, realized wealth is taxed by the capital gains tax, but in very unequal societies, the wealthy do not even need to liquidate their big shares of their wealth.”
This was the reason why Salceda shepherded the speedy passage in the Lower House of some measures pushed by the Department of Finance under its comprehensive tax reform program.
“My committee’s first solution was to approve the reform to make land valuation fairer—that lays the foundation for wealth taxes since the worst of all idle wealth is idle land. Another way to tax unrealized wealth is to activate idle national wealth. That’s why I am pushing for the approval of a fair tax regime for mining. It will open the industry to new mineral reservations—a promising development given that the digital economy depends on metals for its hardware. Renewables and e-vehicles are also driving metallic resources we hold in abundance like nickel and copper to historic highs,” Salceda said.
“Taxing drivers of new sources of wealth is also important. That’s why closing the loopholes on the digital economy for large corporations is important,” Salceda added, as he authored the House-approved bills to collect the 12-percent value-added tax from multinational platforms and global marketplaces.
The pending Corporate Recovery and Tax Incentives for Enterprises Act (Create) will also activate wealth and later on collect the gains from doing so, Salceda said.
“So much cash is unused for national development because many of our corporations dominate market share. There’s not much else to do by way of expansion, so they just hoard cash. By incentivizing gross value-added, countryside expansion and new capital formation through Create, we are trying to convert unused wealth into investments that generate jobs and tax flows,” Salceda explained.
“We are committed to finishing Create by January of this year. We know time is of the essence. That is in fact why we approved our version three months after this Congress started, in 2019. I am trying my best to smooth out the concerns of my delegation with the Senate’s version so that we can have a quick bicameral conference committee. We have been working all week long and I am confident our changes are well-argued and evidence-based, so the bicam should be quick. If it were all up to me, this would have passed last year,” Salceda said.
“There are many ways to tax wealth, but it’s not always straightforward. That’s why my committee always tries to be creative with our economics,” according to Salceda.
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