A regressive tax system

POPE Francis, during his trip to the Philippines, called attention to “scandalous social inequalities” plaguing the country. Indeed, a 2011 World Bank report cited the Philippines as having the highest level of income inequality in East Asia.

Our outdated tax scheme exacerbates this dismal situation. For instance, the prevailing personal income tax rates and brackets remain unadjusted, nearly 18 years since they were adopted. And with the consumer price index doubling in the intervening years, tens of thousands of young professionals and junior executives find themselves catapulted to the top tax brackets.

An entry-level call center agent would already be paying at the third-highest rate of 25 percent while a mid-level professional with gross monthly income of P60,000 would be taxed at the same rate charged the owner of the company he works for.

Such tax scheme pushes our people to jobs overseas. A person earning around $5,700 (roughly P250,000) will be taxed at 2 percent in Malaysia, 10 percent in Thailand, 15 percent in Indonesia and exempt from income tax in Singapore. That same person will be taxed at 25 percent, here at home. This explains why in a 2014 Pew Research Center survey, 31 Filipino respondents said they would recommend “moving abroad” to a young person who wants a good life.

With the current scheme, a significant portion of the government’s tax revenues come from middle-class wage and salary earners, mostly as taxes withheld. A 2014 UP School of Economics study revealed that up to P240 billion in government revenues–representing up to 20 percent of total tax collection in 2013–came from the incomes of only 4.66 million Filipino families, comprising an overworked and increasingly thinned-out middle class.

What we have is in fact a regressive taxation system, contrary to constitutional provisions mandating a progressive one. With much of the population unable to pay taxes and well-to-do families able to avoid tax obligations, the burden falls mainly on the shoulders of the salaried and fixed income earners.

President Aquino recently signed into law a measure that raises the tax exemption ceiling on salary benefits such as 13th month pay and Christmas bonus, from P30,000 to P82,000. The measure will benefit an estimated 22 million Filipino wage and salary earners– putting back much needed purchasing power into the hands of middle class families. It should also mark the first of many needed reforms in our unjust taxation system.

E-mail: angara.ed@gmail.com.

source:  Business Mirror