Government rejects income tax cut

MANILA, Philippines - The government rejected yesterday a bill filed in the House of Representatives that seeks to lower the taxes paid by fixed-income earners, saying the administration could not risk losing the gains of the robust economy.

“We cannot put our fiscal sustainability and credit rating at risk by doing piecemeal revenue reducing legislation,” Finance Secretary Cesar Purisima wrote in his text message to presidential spokesman Edwin Lacierda, who relayed the message to Palace reporters.

“We urge Congress to approach fiscal reform from a holistic standpoint with the goal of making the structure more buoyant, equitable, progressive and competitive,” Purisima said.

He said this would allow the government to continue increasing investments in the people and infrastructure, which is crucial to national competitiveness and ability to attract investments and job opportunities.

Purisima issued the statement in reaction to the bill authored by Marikina Rep. Miro Quimbo, chairman of the House ways and means committee, seeking the passage of a measure lowering the income taxes of private and government employees.

Lacierda was asked if the Aquino administration is willing to look for other sources of revenues in case the bill is passed, which Bureau of Internal Revenue commissioner Kim Henares estimates would cost the government at least P29 billion in lost revenues.

Quimbo, a stalwart of the ruling Liberal Party, revealed that government records have shown that 60 percent of professionals and 70 percent of entrepreneurs do not pay their tax dues, unlike fixed-income earners who comprise the tax base of the government.

“We have 23 million earning individuals but only 5.6 million of them pay taxes. The rest are either exempted because they are minimum wage earners or they do not pay taxes at all,” he explained to House reporters early this week.

“Those receiving salary every 15th and 30th of the month are the ones with 100 percent compliance, but then again, those with minimum wage who are exempted from paying also belong here. As such, only 18 percent of the working population are paying taxes,” he added.

Quimbo, along with several other co-authors of the House bill, has been working on lowering the individual and corporate income tax rates and wants to have the tax brackets revised.

According to him, the measly tax base only highlights the need to pass the measure lowering income and corporate tax rates and revising the tax collection system, making it more fair and equitable and not too burdensome on workers who bear the brunt of paying taxes.

Under the pending measure, the country will have four income tax brackets.

This means those earning P180,000 and below annually are exempted from paying taxes, while those who annually earn from P180,000 to P500,000 would pay nine percent.

Individuals whose yearly income is from P500,000 to P10 million would pay 17 percent, while those with more than P10 million annual income will have to pay 30 percent.

The rates are based on family and income expenditure survey, labor force survey and census.

“We will base it on gross income, regardless if you are a breadwinner, married, your number of children and the like. We want a system that is straightforward,” the administration lawmaker said.

“The simpler the computation, the easier is the compliance. I am very confident that this measure will be supported in the committee and in the (House) plenary,” Quimbo pointed out to journalists.

“There should be higher tax compliance for professionals and entrepreneurs. We can’t sleep on this. The income tax rates are stuck in 1997 levels. That means that whether you are earning P500,000 or P50 million annually, you pay the same tax rate of 30 percent,” he added.

Because of the stagnant rates, Quimbo lamented that a soldier currently pays 15 to 20 percent income tax when he or she should only pay five percent, while a new teacher who earns P20,000 has to pay as much as 20 percent income tax.

A new teacher who previously had a starting salary of P12,800 would only have to pay 10 percent income tax rate.

“This is simply not right because the purchasing power of P20,000 now is not the same as before. You won’t be able to buy much with that. Those being hit are high school principals and mid-level managers,” Quimbo said.

The Department of Finance has pegged the projected government revenue loss from the lowered income tax rates at P29 billion and is mulling on exempting those who earn less than P1 million annually from paying income taxes.

Valenzuela City Rep. Sherwin Gatchalian slammed yesterday the Department of Finance (DOF) for its anti-poor proposal to increase the value-added tax (VAT) from the current 12 percent to 14 percent and reduce exemptions in exchange for lawmakers’ plan to reduce income taxes.

“The reduction in the income tax rates will not be felt by the poor because their incomes are already exempted from taxation. The poor, however, will be adversely affected by any increase in the VAT rate,” Gatchalian said.

He said the DOF proposal essentially makes the existing tax system more regressive and saddles the poor with a larger tax burden.

He also called on Malacañang to support the pending bill to reduce income taxes, as the foregone revenues will be more than compensated by the increased purchasing power of workers, which will boost growth.

Last month, the DOF submitted to Congress the government’s tax reform bill, which includes an all-in income tax exemption to all wage earners with an annual income of less than P1 million.

Finance officials also proposed to raise VAT and expand the VAT base by removing all exemptions except in agriculture, health, banks, education and remove zero-rating except direct exports.

Gatchalian said the Philippines has some of the highest taxes in Southeast Asia and the country also has the highest VAT rates at 12 percent. – With Paolo Romero