The Market Monitor Minding the Nation's Business
The Tax Management Association of the Philippines (TMAP), an organization of accountants and consultants of the country’s biggest corporations, is at loggerheads with Finance Secretary Cesar Purisima, one of its own, over the tax-cut measures pending in Congress.
TMAP supports the tax cuts, which Purisima firmly opposes, calling them “piecemeal revenue-eroding measures.”
In a statement accompanying the Department of Finance’s release of the September budget’s balance of a P22.1-billion deficit, Purisima said: “Sustaining our momentum requires balanced and responsible
policies from courageous leaders who consider the entire picture, no matter which political season is in bloom.”
But TMAP said Purisima’s fears about revenue collections being eroded were unfounded. “The supposed P30-billion decline in government revenues projected by the DOF-BIR from the tax-reform proposals merely account for about 2 percent of the Bureau of Internal Revenue’s total tax collections, which reached P1.3 trillion in 2014,” TMAP said.
Under the current tax system, the group said, increase in collections relies on inflation, rather than through efficient tax administration.
“This is detrimental to salaried workers, whose taxes account for about 80 percent of the total BIR collections from individual taxpayers,” TMAP said.
The group also noted that, based on the BIR’s 2014 annual report, taxes withheld from salaried workers were the single biggest contributor to the jump in BIR collections in 2014.
In a statement supporting the tax-cut bills, TMAP said “inflation has pushed up nominal wages and salaries into higher tax brackets, causing increases in income taxes but without an increase in purchasing power.”
Inflation had raised consumer prices by more than 300 percent, resulting in the so-called “bracket creep” where salaries or corporate earnings adjusted to inflation are taxed higher, TMAP said, as it suggested that “bracket creep can easily be countered by a system of index-linked tax brackets.”
The automatic indexing of tax brackets every three years on the basis of the consumer price index (CPI) could ensure that taxes increase only as the real income of salaried individuals increase, TMAP said. “The Philippines effectively imposes the highest personal income tax rate on an equivalent of P500,000 and the highest corporate income tax rate in the Southeast Asian region,” it added.
But Purisima insisted that the tax-cut measures will, in the long run, prove to be “fiscally unsustainable.”
The country is still at a tax-to-GDP (gross domestic product) level of 13.6 percent in 2014, “far from our target of achieving at least a 16-percent tax-to-GDP ratio in 2016 to fund social commitments and other demands for public goods in the future,” Purisima said. “We agree with the need to reform our tax system. But since the problems with it are structural in nature, we urge fiscal responsibility in considering tax reform in a comprehensive and holistic manner.”
The budget posted a deficit of P22.1 billion in September, bringing the year-to-date balance to a P25.5 billion deficit.
“We only started accelerating our gains a few years ago, and we have a lot of catching up to do,” Purisima said.
He reported that until September, infrastructure spending has gone up from 1.8 percent of GDP in 2010 to 4.3 percent in 2015, and eventually 5 percent in 2016. “Meanwhile, over the same period, budgets for social services went up by 471 percent, basic education by 79 percent, anf health by 211 percent,” Purisima said.
“Still, there’s a long way to go: as of 2013 the Philippines ranked only seventh in terms of amount of available fiscal space allocated for education and health, with Vietnam leading the way having 6.6-percent average education spending to GDP (the Philippines at 2.7 percent) from 2006-2012 and 3.66-percent health spending to GDP (the Philippines at 1.39 percent) in 2013.
Former Budget Secretary Benjamin Diokno said he found it odd that the Aquino administration was worried about a rising deficit when it has been notorious for underspending the budget, resulting in the delivery of goods and services that was much lower than what Congress had authorized.
Diokno, now a University of the Philippines School of Economics professor, said: “In 2014, the Aquino administration targeted a budget deficit of P266.2 billion or 2 percent of GDP. Actual deficit was only P73.1 billion or 0.6 percent of GDP, and this is not because of higher-than-targeted revenue intake. It was plain and simple incompetence or poor budget planning or both: planned spending of P2.284 trillion versus actual spending of P1.982 trillion, or a difference of P302 billion.”
He added: “This year, the same sad and horrible story is unfolding. At the present rate of project implementation, the administration would be lucky to have a one percent deficit-to-GDP ratio for the entire year.”