Angara: ‘Outdated’ system makes middle class pay same taxes as billionaires

MANILA, Philippines — The country’s “outdated” and “inequitable” taxation system makes middle-income earners pay the same taxes as billionaires and needs to be updated immediately, Senator Juan Edgardo “Sonny” Angara said Thursday.

“Updating our tax system is an issue of equity. It’s not an issue anymore of macroeconomics. That’s all meaningless if the average person has nothing left for his family,” Angara, who chairs the Senate ways and means committee, pointed out at the panel’s second hearing on bills that seek to reduce income tax rates.

“In a highly unequal system like ours, talagang kawawa yung nasa gitna (those in the middle are hit hardest). So let’s try to do something here,” he stressed.

Angara pointed out that the current top tax bracket, which covers those earning more than P500,000 a year, has remained unchanged since the time of the late President Ferdinand Marcos.

“Can you imagine? With P500,000, my parents told me you can already buy a house and lot in the ‘70s and early ‘80s. Ngayon, kotse na lang mabibili mo doon (Today, you can only buy a car with that money),” he said.

“Tax brackets should be adjusted to make (these) more sensitive to current salaries of Filipinos. Because at present, a person who makes P50,000 a month — who is considered middle class — is already in the top tax bracket and is also paying the same tax rate as the billionaires in our country,” Angara explained.

The lawmaker also pointed out that the tax burden in the Philippines is heavier than in neighboring countries.

A Filipino earning P500,000 (equivalent to US$11,000) annually is taxed the maximum 32 percent while in Singapore, where the top tax bracket starts at US$250,000, the tax rate is only 20 percent.

In Indonesia, the top tax bracket of US$43,000 is taxed 30 percent; Malaysia’s top tax bracket of US$30,000 is taxed 26 percent; and Thailand’s top tax bracket of US$123,000 is taxed 35 percent.

“Talagang nawala na ‘yung pagiging progresibo ng ating tax system. Nawala na ‘yung elements of equity and fairness (Our tax system is no longer progressive. The elements of equity and fairness are gone),” Angara said.

Angara’s Senate Bill No. 2149 seeks to adjust and compress income tax brackets, and reduce the maximum tax rate from the current 32 percent to 25 percent by 2017.

If enacted, the country’s top income tax bracket will be pegged at over P1 million (equivalent to US$22,000) and taxed 25 percent by 2017.

At Wednesday’s hearing, the law firm Punongbayan and Araullo, represented by lawyer Lea Roque, backed Angara’s bill and suggested the automatic adjustment of the tax brackets and tax rates based on the consumer price index every three years, without the need for legislative action.

Lawyer Malou Lim of Isla Lipana and Co. also backed the bill, saying lower taxes would result in higher capital inflow and higher purchasing power.

Lawyer Benedicta Du-Baladad of the Financial Executives Institute of the Philippines, on the other hand, stressed the need to simplify the tax system for easier compliance and improved collection.

But the Department of Finance reiterated its opposition to the measure.

“At a personal level, of course, you would want to reduce tax rates,” Finance Undersecretary Jeremias Paul said. “But as fiscal managers, we want to make sure that there’s balance. If they can come up with ideas on how we can improve our revenue generation, our tax effort, then certainly that would be welcome.”

To which Angara responded: “If you’re really vehemently against lowering the tax rates, what about updating the tax brackets at the very least as a minimum position? Because we’re really not complying anymore with the command of the Constitution that we should have a progressive tax system.”

Malacañang has been reported as being open to considering lower income tax rates so long as these do not drastically diminish the nation’s coffers.

“We all want to lower taxes but we also must consider the plight of the government. We think measures to raise income are just as important as measures to raise revenue. It should be simultaneous with our moves to make the tax code more progressive, more equitable. As we correct some of the inequities in our highly inequitable society, we must also find a way to balance all these things,” Angara said. –Ernie Reyes, InterAksyon.com