President-elect Rodrigo Duterte was reported to have said he would abolish the Bureau of Internal Revenue (BIR), Bureau of Customs, and the Land Transportation Office once he steps in as President, due to rampant corruption in these agencies (GMA News 05.16.16). Kim Henares was deeply hurt (Pinoy News 05.24.2016). Why, she has been incumbent President Benigno S. C. Aquino III’s top performer for revenue generation in his now-ending six-year term.
“I know BIR Commissioner Kim Henares already has a reputation for being fiercely dedicated to her duties, but those involved can attest that all our work paid off. Tax collections have never been more efficient,” said Aquino.
“For example, in 2012, we breached the P1-trillion mark for the first time. Collections from the arrears management program have also drastically increased: from P2.3 billion in 2013 to P8.4 billion in 2015. All this has led to increased fiscal space for our administration and even our successors,” he added (Philippine News 05.26.2016).
BIR Collections were P1.335 billion in CY 2014, 91.65% of goal, and an increase of 9.71% over 2013. About 58.79% of grand total was contributed by company and corporate enterprise, and 18.52% was from individual income taxes and withholding taxes on wages. Combined, income taxes paid by companies and individuals (except capital gains taxes and other taxes withheld at source like bank deposits and government securities) were 77.81% of total collections (computed from Table 4 “Comparative Internal Revenue Collections and Goals by Type” on BIR Web site).
Taxes on net income and profit have been paid by 753,000+ corporate taxpayers and 15.345+ million individual taxpayers as of December 2014. (BIR tables for 2015 are only for the first semester, but interpolation shows that 2013-2014 and 2014-2015 keep the same growth in collection at 9.71%+ increase per year. Growth in number of registered taxpayers is steady at 8.2% from CY 2013 to CY2014 and 8.21% 1st Sem. CY 2015 from 1st Sem. 2014 (Ibid.).
Looking good, Kim, but you are just not his type. One consolation is that perhaps it’s not you, but you know, tax cuts are a very popular issue, and very effective for campaigns and popularity surveys. Candidates in the immediate past election have all somehow baited votes with promised income tax cuts. In fact before that, many politicians have proposed these, even during the term of President Aquino.
Dr. Rosario Manasan of the Philippine Institute for Development Studies (PIDS) assessed the various bills filed in Congress to reduce income tax rates relative to neighbors in the Association of South East Asian Nations (ASEAN). She said that the Philippines’s top marginal personal income-tax rate of 32% is higher than the Asean member-states except for the 35% in Thailand and Vietnam (Business Mirror 03.16.2016). In Vietnam, Malaysia, and Thailand, workers earning the same annual income only pay 20%, 11% and 10% respectively (Tax News, 08.19.2014).
Last year, the Aquino government rejected a bill filed in the House of Representatives to reduce the taxes paid by fixed-income earners, saying “the administration could not risk losing the gains of the robust economy.” Kim Henares estimated that the government would suffer at least P29 billion in lost revenues (Philippine Star, 09.04.2015). In an earlier reaction to then proposed tax cuts, the Department of Finance estimated that the government would stand to lose at least P43 billion in revenue for the three years to 2017 (Tax News, Ibid.)
In exchange for the lawmakers’ plan to reduce income taxes, Finance Secretary Cesar Purisima proposed to increase the value-added tax (VAT) from the current 12% to 14% and reduce exemptions (The Philippine Star, Ibid.). BIR Commissioner Henares agreed that income tax rates can be lowered if the Bank Secrecy Law will be lifted, perchance to find other sources of revenue for the BIR (The Philippine Star 09.15.2015). Always a quid pro quo.
But that’s the way it is, Dr. Manasan said in the PIDs study.
“The government should look for new revenue measures to compensate for the projected revenue loss that will arise as a result of the implementation of any of the various proposals to restructure the personal income tax” (Business Mirror, Ibid.).
Yet she stressed that the Philippines has not adjusted its personal income-tax system since 1998, and there is that “phenomenon of ‘bracket creep’, defined as the non-indexation to inflation of personal income-tax brackets. This bracket creep occurs when employees’ income increases over time as a result of inflation, pushing them to pay higher taxes, (while) their purchasing power remains the same” (Ibid.).
Incoming Finance Minister Carlos Dominguez has looked at the proposed reform package too-late submitted by outgoing Finance Minister Cesar Purisima last month which recommended a decrease of the income tax rate to 25% and the tandem recovery scheme of expanding levy coverage plus raising the Value Added Tax rate (VAT) from 12% to 14% (BusinessWorld06.06.2016).
Dominguez agrees with the reduction of income taxes to the “mid-20% level” to “provide taxpayers with more money to spend and encourage business activity in the Philippines” (Ibid.). He calls this a “long-term investment” to prod consumption, not a revenue-erosion sacrifice. Despite an expected budget deficit from decreased tax revenues and increased government spending for stepped-up infrastructure projects, increased borrowing (estimated up to 3% of GDP target) will sustain expected GDP growth to the targeted 8% in the Duterte term.
Dominguez says no to an increase in VAT because this punishes all and is anti-poor, though incoming Budget Chief Benjamin Diokno said “lower income tax rates may have to come with a corresponding increase in VAT to as much as 15% from the 12% currently, in order to offset revenues to be foregone” (BusinessWorld 06.14.2016).
Tax cuts always come with passionate pros and cons, and a lot of bargained-for quid pro quos. Yet supply-side economists of the 1980s espoused and proposed this to governments, with the best success stories of tax cuts in the terms of US President Ronald Reagan and his “Reaganomics” and George W. Bush who hotly pursued tax cuts alongside deficit spending to spur growth.
But “in January 2012, the US economy plunged into an unprecedented $15-trillion deficit” (The Economics Book, London, 2012).
Economists William G. Gale and Andrew A. Samwick of the US Ivy-league Dartmouth College and the National Economic Research warn: “Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates. Base-broadening measures can eliminate the effect of tax rate cuts on budget deficits, but at the same time they also reduce the impact on labor supply, saving, and investment and thus reduce the direct impact on growth” (Effects of Income Tax Changes on Economic Growth, September 2014).
Don’t take it personally, Kim Henares, that you did not elicit that wolf-whistle to appreciate your charming personality as tax-vixen for the past six years of torrid tax collection.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com
source: Businessworld
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