Income tax rate to be slashed by half?

A LOT has been said about tax burden, stifling tax rules, and tight Bureau of Internal Revenue (BIR) assessments.

Many taxpayers believe that there’s already too much to bear in terms of the impact of taxes in the Philippines. In particular, for salaried employees, this is very much felt every payday, when they account for their meager take-home money, after being ripped by huge income tax deductions. For the individual investors alike, the weight of tax is felt when they see their corporations subjected to vast corporate income tax, in addition to the dividends tax that they have to pay when they earn their investment yield. Tie these to some recent confusing tax rules and unpredictably bizarre tax assessments, and we can imagine how a taxpayer in the Philippines would take a selfie of his face reacting to such situations.

If we couple the above scenario with the current heat wave that we are currently experiencing, we don’t know whether a taxpayer will already tell himself that, indeed, the end of the world is very near! Exaggeration? Maybe.

But, if you are a common taxpayer who finds it hard to sustain your daily expenses and the needs of your family; if you are an employee who attends to numerous and unending requirements in a BIR assessment; or if you are a tax officer who is confused about properly applying the tax rules due to conflicting interpretations, you may realize that tax matters in the Philippines are undeniably too burdensome.

That is why, when the news broke out that there are legislators who are pushing for the reduction of income tax rates, somehow, taxpayers suddenly saw a sliver of hope. In certain legislative proposals, the recommendation is to cut the maximum income tax rate of individuals from 32% to 15%. For corporations, the reduction is proposed to be from 30% to 15%. This definitely sounds promising.

Let us try to compare the individual income tax rate in the Philippines with that of the neighboring countries. There were studies that the current maximum rate in Singapore, Myanmar, and Cambodia is 20%; Laos, 24%; Malaysia, 26%; and Indonesia, 30%. The maximum rate in the Philippines, however, is 32%, a relatively higher tax rate.

In addition, it is noticeable that the Philippines’ individual income tax brackets have remained unchanged since 1997, or for around 17 long years, even as the consumer price index has almost doubled already. Consequently, given the individual income tax rates ranging from 5-32%, a significant number of taxpayers falls under the category of the maximum rate of 32%.

On the other hand, for corporate income taxes, in our neighboring countries like Indonesia and Malaysia, the corporate income tax rate is at 25%, while in Singapore, the rate starts at 8.5% with a ceiling of 17%. In comparison, the Philippine corporate income tax rate is high at 30%, which could deter foreign investors.

Now, having mentioned the proposed reduction of income tax rates, opposition is not hard to find. There are some who may say that such proposal is a bit one-sided without looking at the consequential drop in the government’s revenue. They may raise a reminder that taxes are the lifeblood of the government, and that reaching the annual collection target of the BIR will be hampered.

However, supporters of the proposed reduction would explain that lowering the income tax rate would provide individual taxpayers with more take-home money to spend, which, in turn, would stimulate the economy. Also, the spending could be on goods or services subject to value-added tax, which would ultimately be remitted to the government anyway.

Moreover, the lowering of individual and corporate income tax rates would make the Philippines more competitive compared with our fellow members of the Association of Southeast Asian Nations, considering that the ASEAN integration is forthcoming. In the integration, remember that there will be free flow of goods, skilled labor, and investments, among other things, and the Philippines should definitely be not unmindful that tax consequences have an important role in these aspects.

Hence, the effect of the reduction of income tax rates should be looked at in a holistic perspective, as it has a cyclical outcome affecting the lives of the taxpayers, then the stimulation of the economy, and then the benefits of economic growth for the good of the country as a whole.

There are a lot more specifics as to the advantages of lowering the income tax rates in the Philippines if we will try to study the different versions of the proposed legislative bills, and the rationale behind them is not without sound reason.

We just hope that, amidst the tax crises and hardships that are currently bombarding the taxpayers, there will be favorable tax developments in the near future. Slashing the income tax rate by half would definitely help ease the taxpayer’s lives. If it happens now, well, taxpayers may be too ecstatic that we may even forget the discomfort caused by the extremely hot weather.

To slash the income tax rate by half? Perhaps, we have to seek divine intervention and just hope for the best.

The author is a director with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

source:  Businessworld