Tax reform is about fairness

Mar Roxas simply does not get it. That is not surprising because Mr. Roxas is from the traditional moneyed class. He knows nothing about making ends meet, something those of us in the middle class struggle with all the time.

The most Roxas would concede is that he would study the tax reform proposals. We all know what happens when Mr. Roxas studies something. Nothing happens. We saw that movie at DOTC when he was on top of it.

While I was in Singapore over the weekend, an OFW posted this complaint on Facebook which I posted on my wall. It expresses the unfairness of our current income tax system in plain peso terms:

“My tax in Singapore for earning P1 million would only be P6,000 for the whole year. If I stayed in the Philippines earning P20,000/month or P240,000/year, my tax would be P48,000 vs P6,000.

“Working in the Philippines is a scam worse than Emgoldex. You are paying a premium for a very poor quality of service. It’s like paying for a luxury hotel but sleeping in a hammock in a dumpsite.”

We need income tax reform now. Aside from being fair to taxpayers, Citizen Watch points out we also have to be regionally competitive. Because of the “more lenient, reasonable income tax rates elsewhere in the region, some talented Filipinos have chosen to live and work abroad, breaking families apart and contributing to brain drain… an employee who earns P500,000 a year is subjected to a 32-percent income tax. The same income merits 10 percent in Thailand and two percent in Singapore…  With the º looming Asean integration and national borders disintegrating, this becomes a real issue.”

Of course because the exasperated Filipino professional goes abroad and is now exempted from paying Philippine income tax as an OFW, the short sighted greedy government gets nothing. We lose the investment on their education and training, specially for UP graduates. And if they brought their families with them, we get little or nothing by way of remittances.

As educated as Mr. Roxas is, he fails to see tax reform beyond the perspective of the tax collector trying to meet a target set out of thin air. Citizen Watch Philippines puts it in perspective:

“It should also be noted that while lower income tax rates would briefly affect the country’s coffers, it will further strengthen our already booming consumer economy, which would consequently result to higher government revenues, this time through the expanded value added tax (EVAT). The more cash that moves around the market, the livelier the economy becomes in the long term.”

Yet, Mr. Roxas and the folks at DOF insist tax reform will imperil vital expenditures on education, health and welfare, as well as the country’s investment credit rating. That’s sheer bullsh#t.

It is all a matter of setting good priorities. The BIR estimated a tax revenue loss of about P30 billion in a national budget of P3 trillion. Where is the Liberal Party’s sense of proportion here?

MyFinanceMD.com, a blog, computed a tax savings for a middle income couple earning about a million pesos a year in the vicinity of P230,000 if they were working in Singapore instead of the Philippines. That translates to about P19,000 a month, an amount which is loose change for Mar Roxas.

But MyFinanceMD.com lists down what that P19,000 monthly tax savings can buy for a struggling middle class family:

“This could mean, they can now afford to buy a HOUSE with a monthly mortgage of P5,000-P10,000/month, perhaps this could lower the informal settlers around the Philippines. Some middle-income families are also informal settlers, especially those earning P328,000/year with more than five family members.

“This could mean an EDUCATION PLAN that can be used to plan for their child’s education up to college, causing less drop-outs in school…  

“This could mean they can start investing/saving for their RETIREMENT PLAN. According to a SSS survey, out of 100, only two percent of the population can retire comfortably and the remaining 98 percent depends on either: their family, charity or the government.

“Contrary to what the government believes, this could mean MORE TAX COLLECTION for the government. Lower taxes could mean better compliance and greater purchasing power for an ordinary person like me and you. Greater VAT collection for the government. All goods, services and consumption are taxed with 12 percent VAT.

 “This could mean more business money that could be put up. Making each of us ENTREPRENEURS, thus creating more jobs for our fellow citizens…

“This could mean more people buying LIFE INSURANCE and HEALTH INSURANCE, thereby, reducing Filipino dependence on corrupt government officials. In cases like a death of a family member or major sickness, people won’t go to a politiko asking money “pampalibing” or “pampagamot” – which could even push these politikos to corrupt practices, justifying their acts as what they get, they are given to people too.”

I am sure Mar Roxas knows we don’t have to sacrifice education, health or even national security by making our tax rules fair. There is a bit of intellectual dishonesty when he asked rhetorically “what projects do we have to stop?”

There is that P30 billion in the proposed budget to increase capitalization of the DBP and the Land Bank. How urgent is that? Indeed, why should government even own a bank, much less two banks? Actually three if we include UCPB.

These government banks should be privatized. They are just piggy banks for corrupt national officials. We all know how the PNB, when it was still government-owned, was abused by a succession of administrations to fund losing projects of their cronies. Our taxes were used to clean its books so it could be privatized and saved from bankruptcy.

Government does not need to own a bank. We may even save a lot of money by asking private banks to bid for services that government requires. GSIS is using private banks. I know about the lofty objectives for having a development bank and for a bank that will serve agrarian reform. But I doubt if the track record of these banks justify their continued existence as government banks.

Being a supposed investment banker trained in Wall Street, it is easy to expect someone like Mar Roxas will have bold new ideas on how to manage our nation’s finances. But then, given his track record in the last five years, it would be silly to expect any innovative idea from Mr Roxas.

I can think of one more source to cover that P30 billion tax revenue loss with tax reform. It had been reported that tax losses due to oil smuggling is P30 billion. There you are… and add the losses from rice and sugar smuggling too and there is more than enough to provide relief to middle class taxpayers.

We need tax reform now because the rates and the brackets have become totally unreasonable. The peso when the tax schedule was drafted 19 years ago is only worth 43 centavos now. Because the tax rate remained the same, the working class is effectively being robbed by its own government. 

“Tax brackets should be adjusted to make (these) more sensitive to current salaries of Filipinos. Because at present, a person who makes P50,000 a month -- who is considered middle class -- is already in the top tax bracket and is also paying the same tax rate as the billionaires in our country,” Sen Sonny Angara points out.

Unless these rates and brackets are adjusted to reflect inflation, government is stealing from its own people. That is an untenably immoral situation demanding immediate relief.

The other thing that needs reform is the complexity of filing a tax return. There was a time when I could do my own tax return. Now, it is so complicated I need to get an accountant.

How much can a retired senior citizen writing a column earn these days? Why do I have to file a VAT return every month and an income tax return quarterly? I just choose to do standard optional deduction because it is too complicated otherwise. Yet, I need an accountant to help me navigate the rules and the forms.

Making it easy to pay taxes should help increase tax collection. Making it too complicated not only makes it expensive for taxpayers to comply, it also allows more room for corruption at the ground level.

One more thing… whatever happened to the recommendations of the DOE Task Force to “Review whether or not the government is ‘overtaxing’ the energy sector”?

As Citizen Watch pointed out, “like the high income taxes, overtaxing results in unnecessarily high electric bills and heavily affects all sectors and is a major factor affecting our country’s competitiveness.”

Paying taxes is never painless but do we have to make it the bureaucrat’s equivalent of torture?

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.