The chairman of the House Committee on Ways and Means on Wednesday appealed to Congress leaders to urge President Aquino to immediately convene the Legislative-Executive Development Advisory Council (Ledac) to tackle the measure lowering individual income-tax rates, following reports that MalacaAang is against the tax-reform bill.
Liberal Party Rep. Romero S. Quimbo of Marikina City, the panel chairman and one of the authors of the bill at the lower chamber, asked Senate President Franklin M. Drilon and House Speaker Feliciano Belmonte Jr. to initiate discourse with President Aquino, with the end view of comparing data and reaching a consensus on the proposal for income-tax reforms.
It is clear that the Senate, the House and the President all aim for the lowering of income taxes. But for a substantial headway to materialize, we need to sit down, agree on the principles, and come up with a measure amenable to all parties, Quimbo said.
While Quimbo made this statement, however, another legislator revealed that President Aquino has already thumbed down the proposal of the Department of Finance (DOF) to lower income-tax rates, then recover revenue losses by increasing the value-added tax (VAT) to 14 percent.
The lawmaker, who is a House leader, said Mr. Aquino turned down the proposal of the DOF during a recent meeting attended by Finance Secretary Cesar V. Purisima, Budget Secretary Florencio B. Abad, National Economic and Development Authority Director General Arsenio M. Balisacan and Internal Revenue Commissioner Kim Jacinto-Henares.
President Aquino opposed the DOF proposal to reduce individual income and corporate taxes, but recover the same through VAT increases. The President said we cannot reduce taxes if there’s no [counter-revenue law]. He also doesn’t like VAT increases and additional taxes, the lawmaker said.
He added that Mr. Aquino junked the proposal because it will only burden the ordinary Filipinos.
The President [told the Cabinet officials] that you’ll unburden the burdened-the middle class-but the ordinary people will suffer [when we increase the VAT], he said. Instead, the legislator said that President Aquino told his Cabinet officials to find other ways to recover the revenue losses if they want to reduce individual income-and corporate-tax rates.
Quimbo added that any initiative to enact income-tax reforms should include the Palace, since nothing can be worse than Congress passing a measure that will only be vetoed by the President due to disagreeable provisions. For the tax reforms to be successfully enacted into law, we need an inclusive process at the onset with all stakeholders being given the chance to put forward their positions. The Ledac is the best venue for this, Quimbo said.
He is the author of House Bill (HB) 4829, a centerpiece bill of the 16th Congress that seeks to provide tax relief to the middle and lower classes.
He said the measure aims to overhaul the income-tax system to adapt to present realities, to correct the current income-tax situation wherein minority of Filipino workers pay the majority of tax payments, the middle class shoulders the bulk, and households headed by the self-employed have the lowest tax-participation rates.
Under the bill, individuals earning below P180,000 annually will be exempted from paying income tax. In the current setup, those earning P10,000 or less per month pay 5-percent income tax.
The bill also reduces the income-tax rate of those earning above P180,000 to 5 percent. The highest rate at 30 percent will be paid by those earning P1.1 million annually.
Currently, those with yearly earnings of P500,000 and above pay 32-percent income tax.
The Philippines has the third-highest individual income-tax rate in the region at 32 percent, next to Thailand and Vietnam, both at 35 percent. The Philippines also has the highest VAT at 12 percent, as the country’s current individual income-tax bracket has remained unchanged since 1997.
In a Purisima-signed DOF memorandum, the agency asked President Aquino to endorse its proposed Comprehensive Tax Reform Package, which includes a revenue-positive package, an empowered tax administration, a simpler but more focused tax system and a competitive tax system.
Under this package, the DOF proposed to Mr. Aquino to exempt 11 million people from paying income taxes by granting an all-in income-tax exemption of P1 million to all wage earners.
The proposal also said the government will lower the tax rate within six years from 32 percent to 25 percent for individual wage earners, and lower the tax rate within five years from 32 percent to 25 percent for self-employed and professionals.
For corporate, the DOF wants to lower the tax rate within five years from 30 percent to 25 percent.
However, the department also proposed to increase VAT from 12 percent to 14 percent and expand the VAT base by removing all exemption other than those related to agriculture, health, banks, education, as well as remove zero-rating except direct exports.
This is a bold move designed to be a politically viable measure that will capture the imaginations of the public. If this measure is supported, 11 million out of 12 million registered wage earners will not pay taxes, leaving only 4 percent of wage earners in the registered income-tax net, for better administrative focus, the proposal said.
A reform package simplifies our tax administration and tightens its focus on key tax payers for better administrative oversight and makes our tax system competitive, given the impending Asean integration, the DOF added.
The agency also wants to repeal the bank secrecy for the BIR and make tax evasion a predicate crime of money laundering.
The DOF also proposed to increase excise taxes on gas, diesel and other oil products.
While this reform package requires political will to implement, we believe this reform shows the proper balance of political and economic viability. The government is estimated to gain around P88 billion to P152 billion in revenues from the package or an additional 0.6 percent to 1 percent of GDP [gross domestic product] in the first year of the implementation, it said.
Progressive tax system
Quimbo said he is not surprised because the President has always taken into consideration that our tax system should be progressive. I am sure that his reason for opposing the same is based on the fact that we cannot unburden the middle class to make it progressive with them to only burden the ordinary persons who shoulder the bulk of VAT.
He admitted that the government stands to lose P92 billion annually should Congress give in to the tax-reform measure.
However, to recover the revenues lost, Quimbo said the passage of revenue-generating measures-such as bills raising excise tax on fuel, the fiscal incentives rationalization bill, the proposed Tax Incentives Management and Transparency Act, Customs Modernization and Tariff Act, Rationalization of the Mining Fiscal Regime and the bill imposing specific tax on sodas and other sweetened beverages-are needed.
Meanwhile, another bill lowering individual tax has been filed at the House of Representatives.
In his HB 5401, Rep. Neri Colmenares of Bayan Muna said that since 1986, the tax bases remain substantially unchanged.
Based on the 1986 to 2014 Consumer Price Index published by the National Statistics Office, national consumer prices have increased by 539.53 percent since 1986. Thus, the P500,000 top tax base, if adjusted to its present value, is now equivalent to P2.697 million, Colmenares said.
A study presented by the Tax Management Association of the Philippines reveals that while a Filipino individual earning P500,000 annually is taxed at 32 percent, his Asean neighbors with equivalent income are taxed at the following rates: Vietnam, 20 percent; Cambodia, 20 percent; Lao PDR, 12 percent; Malaysia, 11 percent; Thailand, 10 percent; Singapore, 2 percent; and Brunei, no taxes, he added.
Colmenares, citing the official data from the National Wages Productivity Commission, said the daily minimum-wage rate in Metro Manila, the highest nationwide, is at P466, while the lowest is at P213 received by agricultural and non-agricultural workers in the Ilocos region.
These translate to an annual income of about P123,000 for minimum-wage earners in Metro Manila and about P56,232 for the Ilocos region, the lawmaker said.
While a minimum-wage earner is tax-exempt, such dismal levels of income are still way below the Family Living Wage or the minimum amount needed by a family of six members to meet its daily food and nonfood needs, plus a 10-percent allocation for savings, Colmenares added.
HB 5401 seeks to exempt income of families earning below P396,000 per year to preserve the monthly living wage of P33,000 from income taxation and to restructure and simplify the income brackets and their corresponding tax rates.
The measure also seeks to reduce and align the maximum tax rate with those of corporate taxpayers (from 32 percent to 30 percent) and adjust the top tax base-from P500,000 to P2,700,00-to reflect adjustments in the Consumer Price Index (1986-2014) with P500,000 taxed by only about 10 percent.
The bill also seeks to establish an automatic adjustment/indexation mechanism with an interval of three years.
Communications Secretary Herminio B. Coloma Jr. said on Wednesday the Aquino government is open to consider proposals on changing the income-tax rates and continues to work with Congress on this matter.
At a news briefing, Coloma reported that the DOF is advocating a comprehensive review of the existing taxation system so that needed reforms may be instituted.
Coloma pointed out, however, that it was also important to identify new and additional sources of tax revenues that will offset any reduction in collection of income taxes.
According to Finance Secretary Purisima, and I quote, ‘the DOF prefers a holistic review of the tax structure so as not to put our fiscal gains and fiscal health at risk,’ Coloma added.
Administration Sen. Francis Escudero earlier suggested that President Aquino certify the urgent approval of the bill on downward adjustment of individual income-tax rates, considered among the highest in the region.