PIDS to presidentiables: Take stand on income tax

MANILA, Philippines – As the presidential election nears, candidates should make a firm stance on the prevailing income tax reform issue, state-run think tank Philippine Institute of Development Studies (PIDS) said in a report.

PIDS senior research fellow Rosario Manasan said existing proposals to reform the personal income tax schedule appear to be “well-justified.” Nonetheless, other sources of government revenue should be identified to recover losses from lower income taxes.

“Our candidates should make a stand on this issue so that voters know what they are voting for,” Manasan said.

There are several income tax reform bills pending in Congress which, Manasan noted, all attempt to address bracket creep which occurs when incomes increase over time as a result of inflation. This forces employees to pay higher income taxes but their purchasing power remains the same.

The pending bills all attempt to reduce the country’s high personal income tax relative to the prevailing rate in Southeast Asia. The Philippines’ top marginal income tax rate of 32 percent is higher than the prevailing rates in ASEAN with the exception of Thailand and Vietnam.

Manasan said tax reform should be a top priority for the next administration as it is already overdue.

The Philippines has not adjusted its personal income tax schedule since 1998.

PIDS assessed the proposed income tax amendments of Senator Ralph Recto’s Senate Bill 716, Senator Bam Aquino’s Senate Bill 1942, and Senator Juan Edgardo Angara’s Senate Bill 2149.

Also assessed were House Bill 4829 by Representative Miro Quimbo, and House Bill 5401 by Representatives Neri Colmenares and Carlos Isagani Zarate.

Similar proposals have also been put forward by the private sector, among these the Tax Management Association of the Philippines (TMAP).

Recto and Quimbo’s bills would reform the income tax system by adjusting the tax brackets based on changes in the consumer price index between the years 1998 to 2015.

Aquino’s bill, meanwhile, would exempt workers earning below P60,000 annually from paying income tax and raise the top bracket income threshold to P12 million.

Angara’s income tax reform bill would introduce changes in tax rate in a span of three years. It would reduce the bottom marginal tax rate from 15 percent to 10 percent and the top marginal tax rate from 32 percent to 25 percent.

Colmenares and Zarate’s bill exempts from taxation annual incomes below P396,000 and raises the top threshold to P2 million.

In terms of revenue losses to government, Manasan said the “costliest” proposals are those of Quimbo’s and the bill co-authored by Colmenares and Zarate with foregone revenues estimated at P230 billion and P232 billion per year respectively.

Recto’s bill would lead to revenue loss of P52 billion per year while Angara’s bill would cost the government P10 billion in the first year and P61 billion in the third year.

“Whichever proposal passes into legislation, government revenue will suffer,” said Manasan.