The Market Monitor Minding the Nation's Business
By Luis Leoncio
Senate proponents of the bill reducing income and corporate taxes are proposing a new tack to compensate for the revenue losses the government would incur.
The legislators, spearheaded by Senators Edgardo “Sonny” Angara and Francis Escudero, are reviving a measure filed by the latter, lifting the bank-secrecy law, as previously advocated by Internal Revenue Commissioner Kim Henares. Both senators indicated majority of their colleagues in the chamber were supportive.
Apparently, the rationale is that such a move would help minimize tax frauds and, therefore, enhance collection; also, it would make it easier for the government to prosecute tax-evasion cases, especially those involving billions, which would contribute greatly to the coffers of the government.
The only problem is the Senate proposal has turned off colleagues in the House who had previously pledged or indicated support for the tax-cut bill; they crossed party lines to shoot it down.
Speaker Feliciano Belmonte Jr. said it might frighten off foreign investors; House Minority Leader Martin Romualdez said it would be used by a ruling political party to harass the opposition.
The sentiments articulated by Belmonte and Romualdez summed up the long-held fears of many legislators, which account for the failure of similar proposals filed in the Senate to reach even just the deliberative stage; no such bill was ever filed in the House.
Despite the adverse reaction of the House members, sources close to Angara and Escudero said both senators remained hopeful the problem would be hurdled.
Escudero challenged Malacañang to support the bill he filed in 2007 and 2010 and refiled in July 2013, related to Henares’ proposal.
“I have a bill lifting the bank-secrecy law for government officials and employees. The President should certify that, for a start. The bill should first focus on public officials before covering ordinary citizens,” Escudero said.
“Public office is a public trust. Government officials and employees are accountable to the public. To ensure that a civil servant does not use his position to enrich himself, it is necessary that we put in place a mechanism that would enable the government to audit the finances of a civil servant.”
Angara, chairman of the Senate Committee on Ways and Means and main proponent of the tax-reform bill, filed Resolution 1574 last week to start discussions on the lifting of the bank-secrecy law, initially through an inquiry into the feasibility of the proposal, at least as it covers serious tax-evasion cases like predicate crimes under the Anti-Money Laundering Act of 2001. The resolution cited the need to carefully study the lifting of the bank-secrecy law and, at the same time, ensure that safeguards are in place to protect bank depositors from undue or unwarranted intrusion.
The bank-secrecy law was enacted in 1955 to encourage people to deposit their money in local banks. The Philippines is only one of three countries allowing bank secrecy as far as tax-evasion cases are concerned; the other two are Lebanon and Switzerland.
President Aquino, in his latest statement on the tax-cut proposal, said in Iloilo City the bill will not benefit Filipinos because it might affect the country’s sovereign rating among three credit watchdogs, a fear later described as unfounded by Sen. Ralph Recto, chairman of the Senate finance committee.
The country has attained investment grades from Fitch Ratings, Moody’s Investors Service and Standard and Poor’s, which the President attributed to his policies that promoted fiscal prudence.
During the budget hearing of the Department Finance (DOF), senators learned the government was allotting P30 billion in subsidies to the state-owned Land Bank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP), equivalent to the revenues that would be lost under the tax-cut bill.
“The P30 billion in foregone revenues is merely 0.2 percent of GDP (gross domestic product, or the sum of the output of the economy) and it’s equivalent to the amount (the DOF) wants to be given to Landbank and the DBP. We’re hoping the President will rethink these things. I’m supportive of the President and I could only hope he is given the right information,” Recto said. “It seems the government has no qualms about spending people’s money on the proposal for Landbank and DBP. Yet, they cannot explain why this (subsidy) is needed, in the first place.”
“Disgraceful,” was how Angara described the government’s stand on the tax-cut proposal. “You’re depriving people who don’t earn a lot.
And yet, you want the government to have new offices. People are struggling to make ends meet and we are spending the government’s money, the people’s money, like it’s our own personal money.”
Angara noted that the Philippines has the second-highest individual income-tax rate in the region at 32 percent, next to Thailand and Vietnam at 35 percent. The Philippines also has the highest value-added tax (VAT) at 12 percent, which the President and his finance advisers now want to raise to 14 percent if the tax cuts are to be approved.
The country’s current individual income-tax bracket has remained unchanged since 1997 although the consumer price index has almost doubled since.
“Because we haven’t indexed our tax brackets or tax rates since 1997, a new public school teacher’s take-home pay (in real peso terms, meaning adjusted for inflation) is even less today than in 1997 as a result of being in a higher tax bracket due to inflation. This despite an increase in their salary through the salary standardization law,” Angara said. “Is that progress? These are real lives and real people. The government must offer real solutions to regular people, otherwise, growth is just a facade masking inequalities. We must aim for a society where the hardworking are rewarded and have a chance to move up.”