Congress makes last-ditch effort to slash income taxes

By Luis Leoncio 

Legislators are racing against time to pass bills in both the Senate and the House of Representatives seeking to increase tax exemptions on the salaries of Filipino workers, as the final legislative sessions under the Aquino administration wind down. 

The flurry of activities followed signals from Malacañang that it was open to proposals to reduce income-tax rates and was willing continue working with Congress on such initiatives.

Communications Secretary Herminio Coloma Jr. said the Department of Finance (DOF) was advocating a comprehensive review of the existing taxation system so that needed reforms could be instituted.

Finance Secretary Cesar Purisima said the department preferred a holistic review of the tax structure “so as not to put our fiscal gains and fiscal health at risk.”

“It is also important to identify new and additional sources of tax revenues that will offset any reduction in collection of income taxes,” he added.

Marikina City Rep. Miro Quimbo, chairman of House Committee on Ways and Means, asked Senate and House leaders to urge President Aquino to convene the Legislative-Executive Development Advisory Council (Ledac) to tackle the reduction of income taxes.

“It is clear that the Senate, the House and the President all aim for the lowering of income taxes. But for a substantial headway to materialize, we need to sit down, agree on the principles, and come up with a measure amenable to all parties.” Quimbo said.

Any initiative to enact income-tax reforms should include Malacañang since nothing can be worse than Congress passing an income-tax measure that would only be vetoed by the President because of disagreeable provisions, the congressman said.

“For the tax reforms to be successfully enacted into law, we need an inclusive process at the onset with all stakeholders being given the chance to put forward their positions. The Ledac is the best venue for this,” Quimbo said.

Sen. Juan Edgardo “Sonny” Angara had filed the Senate bill updating the income-tax schedule to reduce tax payments for the poor and middle-class brackets or those earning less than P1 million year.

Under Angara’s proposal, the lowest tax bracket would be those earning P20,000 a year and below who will pay a 10-percent tax, from the current P10,000 and below who is assessed a 5-percent tax.

The top bracket under the bill would be those with an income of P1 million or more, paying a 25-percent tax from the current P500,000 and above, charged with a 32-percent tax.

Bayan Muna Party-list Rep. Neri Colmenares, meawhile, appealed to the President to certify as urgent House Bill 5401 or the Personal Income Tax Reform bill that would effectively slash the income taxes of the middle class.

“Since 1986, the tax bases have remained substantially unchanged. Meanwhile, based on the 1986 to 2014 Consumer Price Index published by the NSO, national consumer prices have increased by 539.53 percent since 1986.

Thus, the P500,000 top tax base, if adjusted to its present value, is now equivalent to P2.697 million,” said Colmenares, who is senior deputy minority leader and sponsor of the bill.

With the current income-tax brackets and tax rates, he said the Philippines effectively imposes the highest personal income-tax in the entire Association of Southeast Asian Nations (Asean) region.

Quimbo has been advocating the TRIGR (Tax Reform for Inclusive Growth) campaign, which aims to overhaul the income-tax system to adapt to present realities. His proposals seek to correct the current income-tax situation wherein: (1) minority of Filipino workers pay the majority of tax payments, (2) the middle class shoulders the bulk and (3) households headed by the self-employed have the lowest tax participation rates.

A Tax Management Association of the Philippines (TMAP) study showed a Filipino individual earning P500,000 annually is taxed at 32 percent.

According to Colmenares, Asean neighbors with equivalent income are taxed at the following rates: Vietnam–20 percent; Cambodia–20 percent; Lao PDR– 12 percent; Malaysia–11 percent; Thailand–10 percent; Singapore–2 percent; and Brunei–tax free.

“Against such a backdrop, a great majority of Filipinos would have to content themselves with meager salaries. Official data from the National Wages Productivity Commission show that as of January 2015, the daily minimum wage rate in Metro Manila, the highest nationwide, is at P466, while the lowest is at P213 received by agricultural and non-agricultural workers in the Ilocos region.

These translate to an annual income of about P123,000 for minimum-wage earners in Metro Manila and P56,232 for the Ilocos region,” Colmenares said.

He also noted that while a minimum-wage earner was tax-exempt, his income level was still way below the Family Living Wage or “the minimum amount needed by a family of six members to meet its daily food and non-food needs, plus a 10-percent allocation for savings.”

As of August 2014, the Family Living Wage was pegged at P1,086 daily (P396,390 annually) as shown by independent think-tank Ibon Foundation estimates.