DOF: No risk of capital flight at higher tax for 'ultra rich'
September 14, 2016 | 7:52pm
MANILA, Philippines -- There is no risk of capital flight once the government slaps a higher tax rate of 35 percent on what it called "ultra rich" earners of more than P5 million annually under its tax reform program.
"It's not really a big concern," Finance Secretary Carlos Dominguez told reporters on Wednesday.
Newly-appointed Finance Undersecretary Antonette Tionko agreed, adding that the higher rate is "not that much" of an increase from the current top personal income levy of 32 percent.
The plan, which will be included in the tax reform package to be submitted to Congress, will only affect "less than 1,000 people," she said, citing Bureau of Internal Revenue data.
This will easily cover the bureau's top 500 individual income taxpayers, which includes businessmen and celebrities led by Jacinto Ng of Rebisco Corp. and Sen. Manny Pacquiao.
In 2014, the two paid P280.11 million and P210.31 million in income taxes at a rate of 32 percent.
Local businessmen were also in the list, including San Miguel Corp. president Ramon Ang, Ayala Corp.'s Jaime Augusto Zobel de Ayala, and Metro Pacific Corp. chief Manuel Pangilinan.
"I really don't think they would mind paying a higher tax rate since they are also earning more," said Benedict Tugonon, president of industry group Tax Management Association of the Philippines.
"Besides, some other countries also charge almost the same rate," he said in a phone interview.
At a 35-percent top rate, the Philippines will match taxes Thailand and Vietnam collect from their citizens, according to Department of Finance data. China has a higher 45-percent ceiling.
In Thailand, yearly earners of 4 million baht or more pay the highest levy. Converted into pesos, that amounts to around P5.4 million.
Most high-income earners are also charged with final tax, not income tax, on their earnings such as dividends, Tugonon said.
Going down the proposed tax brackets, Tionko said those who will earn P3 to P5 million will still enjoy the present rate of 32 percent.
'Increase not that much'
"Actually, it is not that much. If you look at the difference between P3 million and P5 million, how much is that, about three percent? That is only P60,000 which isn't much if you earn P5 million," she explained.
At the other end, Tionko said those making P250,000 and below every year will have a lower rate, which she did not specify. Currently, the lowest rate of five percent is collected from those getting less than P10,000 a month.
Since the bigger cap would cover more taxpayers, Tionko said DOF is also proposing doing away with deductions to "simplify" the tax process.
"You don't need it because (the cap) is very high already... It will already be covered, it will already be there," she said.
Dominguez said the plan really is to have a "progressive" tax system "where those who earn more, pays more."
The comprehensive tax reform program has four packages in total, with the first one, containing income tax adjustments, to be submitted to Congress before the end of the month.
"We will see how it goes (for the others). It depends. If deliberations will be fast, why not (give them) right away? If not, then at least we know what to expect," Dominguez said.
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