Angara pushes for lower income tax

MANILA, Philippines - Sen. Juan Edgardo "Sonny" Angara on Wednesday sought for the passage of a measure that aims to reduce the rates of individual income tax from the current 32 percent to 25 percent by 2017.

Angara saw the need to work for the passage of his pet bill, Senate Bill No. 2149, in preparation for the Association of South East Asian Nations (ASEAN) Integration by next year.

He said that it would be consistent with the Philippine commitment to the 10-member ASEAN Economic Community (AEC) Blueprint, which seeks to transform ASEAN into a single market and production base by December 2015.

The measure will also adjust the individual income tax brackets.

While the ASEAN Blueprint does not mandate member countries to amend their income tax schedules, Angara noted that it is highly expected that human capital would flow to where it could earn best.

When the AEC Declaration was signed in 2007, some member-states began to lower their corporate and individual income tax rates, with further reductions in the subsequent years, the senator noted.

“The basis of payment of tax should be on the capability of pay. Many of our countrymen are already in dire poverty,” he said, noting that 30 to 40 percent are living below the poverty line.

"The general policy is that taxation must be uniform but it also must be progressive,” he said.

The Senate committee on ways and means, which is headed by Angara, conducted last Tuesday public hearings on proposals seeking to reduce individual taxes.

He said the tax system should not only be a means to raise revenues for the state but it should also be a way or a method by which the state can promote its ends.

“I know the Aquino administration is big on inclusive growth especially in a country where there are vast income differences. We're on the same team here. I think with smaller tax rates, we can have greater voluntary compliance," he said.

Angara cited reports that indicated the Philippines has the highest individual income tax rate next to Thailand's 37 percent and Vietnam's 35 percent.

Meanwhile, the highest tax bracket of Cambodia is 20 percent, Indonesia 30 percent, Laos 24 percent, Malaysia 26 percent, Myanmar 20 percent and Singapore 20 percent.

He added that the country's current individual income tax bracket has remained unchanged since 1997 even when the consumer price index has almost doubled already.

"In order for the Philippines to attract human capital and to prevent the migration of our own, it is imperative that we reduce the existing income tax rates while maintaining the progressivity of our income tax system, as mandated by the 1987 Philippine Constitution," he said.

The Angara bill provides that in order to buffer the revenue impact of the individual income bracket adjustments and the reduction of individual income tax rates, the tax rate reduction will be spread over a period of three years starting 2015.

During Tuesday's ways and means public hearing, the Bureau of Internal Revenue (BIR), however, maintains that it would oppose any measure that will result to revenue loss.

BIR Assistant Commissioner Marissa Cabreros pointed out the need to compensate revenue loss that might arise once the individual income tax is reduced.

"Since we are tasked and our performance is based on collection, it would be positive for us if whatever measure would be revenue neutral and if there will be resulting revenue loss, there should be identification of revenue raising measure to compensate the revenue loss that will result from this proposal," Cabreros said.

For his part, Department of Finance Undersecretary Jeremias Paul also revealed that the government stands to lose at least P43 billion by 2017 if SB 2149 will be passed.

There have been reports that the counterpart committee in the House of Representatives is looking into raising the value added tax (VAT) to compensate the revenue loss of lowering income tax.

Angara is worried that an increase in VAT might also trickle down to the purchasing power of consumers. "Not to mention it's very unpopular," he quipped.

Angara said he would refer similar bills reducing income tax to a technical working group to further study the matter.