Tuesday, June 10, 2014

A tax break for impoverished millionaires

I DON’T know Senator Sonny Angara; I never voted for him. Neither am I from Aurora. But I had met him, professionally, a couple of years back when he was still a congressman. It was a quick meeting; not the type that anybody will remember. Back then, and even after he got elected to the Senate, he never struck me as someone worth watching. Not until last week, that is.

Now I deem him somewhat deserving of our “middle class” vote, in what my friend and fellow columnist JB Baylon refers to as a doughnut society (where there is no middle). Rarely do Filipino politicians -- and Sonny Angara is a politician above all else -- court the middle class. After all, there are just too few of us; or not enough of us to actually matter in an election.

The middle class, in my opinion, has been diminishing over time, although statistics may indicate otherwise. Its ranks are being raided by the lower class, as rising prices and living costs -- along with stagnant if not declining income -- adversely affect their worth. Very few, usually entrepreneurs, survive these “raids” and successfully go up to the next rung.

And thus some kudos to Sonny Angara, for pointing out that the country’s present tax system is already outdated. He also describes it as inequitable, for making middle-income earners pay the same tax rate as billionaires.

Finally, a Filipino politician -- a wealthy and privileged man -- who seems to understand how it feels to be middle class.

“Updating our tax system is an issue of equity. It’s not an issue anymore of macroeconomics. That’s all meaningless if the average person has nothing left for his family,” Mr. Angara, who chairs the Senate ways and means committee, was quoted as saying during a Senate hearing on bills to slash individual income tax rates. “In a highly unequal system like ours, talagang kawawa yung nasa gitna (those in the middle are hit hardest).”

These comments make Mr. Angara a relatively brave soul; a politician who speaks the truth. From where I sit, I do not see a rich country pretending to be poor, like how some opt to describe us here in the Southeast. Instead, I see a poor country pretending to be rich to the outside world. I see a country of poor masses and impoverished millionaires; its people victimized by its own government through incompetence, indifference and corruption.

And the present tax system, as the government implements it, is among the culprits. It creates a situation of inequality that the government itself perpetrates. As an example, why is the system prejudiced against those who have more than four children or dependents? Why can’t taxpayers claim tax deductions beyond the fourth child? Why can’t people claim maternity benefits from the Social Security System beyond the fourth pregnancy?

For Mr. Angara, the issue is the tax rate, noting that the current top tax bracket of P500,000 and above annual income has remained unchanged since the Marcos years. “Tax brackets should be adjusted to make (these) more sensitive to current salaries of Filipinos. Because at present, a person who makes P50,000 a month -- who is considered middle class -- is already in the top tax bracket and is also paying the same tax rate as the billionaires in our country,” Mr. Angara was quoted as saying.

A person who makes P50,000 a month or P650,000 a year (including 13th month pay) currently pays an annual income tax of roughly P195,000 and nets an annual income of P455,000. And this results in a monthly household budget of about P38,000. For a family of six, that monthly budget is barely enough to keep them out of the slums.

It translates to a daily budget of about P1,200, or only P200 per day per head -- to cover house rent or amortization, utilities, food and clothing, transportation, education, health services, and, of course, mandatory deductions like social security and PhilHealth, plus other government fees and charges other than income tax.

On the other hand, a man who makes P1 million monthly or P12 million annually -- even with a 30-32% income tax rate -- still gets to take home about P700,000 a month to his family of six. There is major disparity in income and purchasing ability, yet they pay the same income tax rate?

And that is why Mr. Angara, through his Senate Bill 2149, proposes to peg at P1 million and above -- from the present P500,000 and above -- the country’s top income tax bracket, and to reduce the maximum tax rate from the current 32% to 25% by 2017.

I feel the top income tax bracket should be nearer the P3 million level (or P250,000 monthly), which is more in tune with what we can realistically define as being rich or wealthy or having more than enough. Taking the case of a family of six, an annual family income of P1 million minus P250,000 in tax (at 25%) results in a daily household budget of only P340 per head per day -- which is below the present minimum daily wage in Metro Manila.

Mr. Angara’s plan is already a major step in the right direction, particularly for middle income earners like me. But unless he raises the top income bracket to at least P3 million, cutting the tax rate to 25% appears to benefit the rich -- like himself and his family -- more rather than the middle- or low-income earners. Those who make millions and billions don’t really bother with tax brackets, as they will always be on top. But cutting their tax rate to 25% from 32% will surely save them a lot of money.

(Send comments to matort@yahoo.com.)


source:  Businessworld

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