It hurts when I pay my taxes

EVERY TIME I get my pay slip, I get depressed. I see the amount of what I was supposed to have earned and, right below it, the amount of tax deducted from my income that I would never see again. Of course, some would argue that I do see the tax I paid in terms of infrastructure and public services. But even if I try to console myself with such platitudes, I find myself feeling more depressed every time I ride the MRT and get squeezed by the hordes of people also trying to get in, or when I go to a government office just to be practically ignored or, on special days, even snarled at.

I am not complaining that I have to pay taxes. Paying taxes is every citizen’s responsibility. Public service will collapse without the taxes paid by the good citizenry. However, how much does the government really deserve to get from my hard earned salary? How much is fair to be considered my civic duty and how much is confiscatory on the part of the government?

I will not whine that our tax rates are higher than those of the rest of the world. There are actually countries that impose higher than 50% tax rates. Compared with such rate, our 32% may not really be something to complain about. However, in most of the countries where the taxes are high, the government provides generous benefits and adequate pension plan. Compared with those countries, our benefits and pension plan are almost non-existent.

When it comes to income taxes paid by individuals, the rates are not the critical measure. The more important consideration is the level of income subjected to a particular tax rate. Fairness dictates that after tax deduction, a person should be left with an amount still sufficient to care for his family’s needs.

Ours is supposed to be a progressive system of taxation where the poor are supposed to pay less and the rich are supposed to pay more. Based on our tax table, once an individual’s annual taxable income hits above P500,000, the highest tax rate of 32% is imposed. In fact, my niece who is a new graduate and receiving around P12,000 a month is already paying tax at the 20% level. With the prices of all commodities increasing almost every month, the 20% tax on such measly income is even more tear-jerking than the latest telenovela.

On top of the 32% income tax that gets automatically deducted from my salary, the remainder of my take home pay will still be subjected to the 12% value-added tax (VAT) for every trip I make to the grocery. No wonder I hardly see anything in my refrigerator after every payday, as almost 40% of my salary already goes directly to income tax and VAT.

Hence, when I read news reports last week that both the Senate and the Lower House are discussing reducing taxes, I could not help but smile. Truly, this was the only good news I had heard in the past week.

There are various bills seeking to reduce the tax rates that were set in 1997 and that remained unadjusted to this date. Most of the bills explained the need to adjust the tax rates considering that the Consumer Price Index from 1998 to May 2013 has almost doubled at 96%. This means that a basket of goods worth P100 in 1998 already costs P196 in 2013.

Senate Bill (SB) No. 716, filed by Senator Ralph G. Recto, proposes to double the threshold level per bracket. This means that the highest rate of 32% will only be imposed once an individual earns more than P1 million taxable income per year.

SB 1942, filed by Sen. Paolo Benigno A. Aquino IV, proposes to adjust the threshold levels and introduce additional brackets. Taxable income over P1 million will be taxed at 32%, and taxable income over P12 million, at 35%.

SB 2149, filed by Sen. Juan Edgardo M. Angara, seeks to reduce the tax rates in preparation for the Association of Southeast Asian Nations’ economic integration by 2015 and align our tax rates with those of our ASEAN neighbors. The reduction of tax rates would be implemented from 2015 to 2017. Under his proposal, the tax rate for the top level of more than P1 million shall be 32% in 2015, 28% in 2016 and 25% in 2017.

House Bill (HB) No. 4099, filed by Valenzuela Rep. Magtanggol T. Gunigundo (2nd district), proposes to lower corporate income tax to 15% and individual income tax to 30%. The bill also proposes to exempt from tax salaries of P180,000 a year.

HB 210, introduced by Cagayan Rep. Salvacion S. Ponce Enrile (1st district) proposes to reduce the tax rates by half. This means that taxable income above P500,000 will be subject to tax at 17.5%. Additional higher brackets are also introduced with the top rate of 32% imposed on taxable income above P12 Million.

Most of the proposals are not really lowering the tax rates but only adjusting the brackets to conform to the increase in consumer price index. Just the same, any reduction, no matter how small, is good news. Hopefully, the Congress will finally be able to pass a law decreasing the tax rates and adjusting the tax brackets. Perhaps, the next time I receive my salary, I can finally afford to buy that bag I have been eyeing for the last two years.

The author is a partner 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