IN the last few months of the previous administration, there was a mounting call for tax reform focused on the need for more equitable tax rates. Under current rates which have not been revised since 1997, a rich man whose income is mostly from stock dividends pays 10 percent, while a salaried employee pays 32 percent. The 32 percent tax rate was fixed some two decades ago on the high salaries earned by top executives. Today, because of inflation, this top rate applies to salaries of ordinary employees.
In his State-of-the-Nation message last July, President Duterte supported calls to lower tax rates. “My administration will pursue tax reforms towards a simple and more equitable and more efficient tax system that will foster investment and job creation,” he said. “We will lower personal and corporate income tax rates.” From 32 percent, the highest income tax rate has now been proposed to be lowered to 25 percent.
Members of Congress, however, point out that if this tax move is carried out by itself, it would result in lower tax collections that would affect the operations of government. To make up for the loss, they are proposing an increase in the Value-Added Tax (VAT) from the present 12 percent to 15 percent. This has met with opposition by some congressmen. Former Speaker Feliciano Belmonte Jr. pointed out that increasing the VAT would raise consumer prices, impacting on all buyers of goods, particularly the poor.
In the Senate, Sen. Rafael Recto, the minority leader, urged that before raising taxes like the VAT, the administration should study other ways to increase collections, such as cutting down on red tape to make it easy for small businesses to file tax returns. He also proposed that the government conduct an inventory of its expenses, especially operating overhead, with a view to cutting down on these costs.
As Congress proceeds with the task of reviewing the entire tax structure of the country, Recto also stressed the need to study the impact of tax changes on certain sectors of the economy. He said the proposed increase in excise tax on fuel would hit the farming and fishing sector, to the extent that the prices of rice and fish would be affected.
Several congressmen have joined in the discussion, proposing that instead of raising VAT taxes, the government should scrap excise taxes on gas, electricity, water, and oil products.
We see in all these discussions not just a move to reform the tax system to make it more equitable, make the country more attractive to foreign investments, and raise funds needed for the programs of the new administration. There is also a move to help certain sectors like farmers and fishermen and the poor in general.
As the administration’s economic managers and the members of Congress turn their attention to the tax issue and grapple with its multifarious angles, we hope that in their effort to reform the system, we trust they will not lose sight of the plight of common ordinary poor folk whose lives are bound to be affected by their decisions.