DOF offers compromise on proposed wealth tax

by Elijah Felice Rosales – The Philippine Star, 23 Sep 2021

MANILA, Philippines — The Department of Finance (DOF) said a proposal in Congress to slap a wealth tax of up to three percent should only cover fixed assets like buildings, land and vehicles

Finance Undersecretary and chief economist Gil Beltran yesterday said lawmakers can consider slashing the coverage of the wealth tax as a compromise, noting that billionaires might just transfer their investments to another country to avoid paying additional dues.

Beltran said Congress should only include fixed assets in deliberating the wealth tax, exempting movables in the measure to give investors flexibility with their capital.

Even without the wealth tax, Beltran said the government has pushed for reforming the property sector by updating the valuation standards used in taxing real estate. Consistent with the DOF’s stand, he asked legislators to approve the measure to improve revenue collection from property assets.

“Solution [is] avoid taxing movables and cover only fixed assets. Real property is already taxed; we’ll just improve valuation to make it equitable and productive,” Beltran told The STAR.

The finance official said the economy stands to benefit and lose in the passage of a wealth tax, whereas billionaires would be required to increase their tax payments, but it may also compel them to pack up their business operations here.

“(A wealth tax is) very progressive as rich people pay more, (but it also) induces capital flight as tax base moves abroad quickly,” Beltran said.

Jose Enrique Africa, executive director of think tank IBON Foundation, said the government can explore measures like imposing exit taxes to discourage billionaires from abandoning altogether their investments in the country.

Africa agreed with Beltran’s proposal to begin deliberations on the wealth tax in fixed assets. He said this would make sure that taxes on luxury items, such as art, jewelry, private jets, sports cars and yachts, would be increased in support of progressive taxation.

Likewise, Africa said enforcing a wealth tax would complement the DOF’s efforts to expand the tax base.

The DOF, through the Bureau of Internal Revenue, has initiated tax investigations against cryptocurrency buyers and social media influencers in a move to capture the digital economy in the fiscal regime.

Progressive lawmakers in the House of Representatives on Monday filed House Bill (HB) 10253 that seeks to slap a wealth tax on individuals with net assets worth P1 billion and above, to raise revenues to fund social services during the pandemic.

Under HB 10253, Filipinos will be charged a tax of one percent for wealth above P1 billion; two percent for wealth over P2 billion; and three percent for wealth beyond P3 billion.

Based on estimates from IBON, the government can generate nearly P237 billion a year just by taxing the 50 richest Filipinos, an amount that can bankroll more than half of a stimulus package awaiting the Senate’s approval.

Passed by the House in June, Bayanihan 3 requires a financing of about P401 billion for various measures geared toward mitigating the pandemic’s impact on the poor.

Over half of the stimulus package at P216 billion will be spent for the distribution of P2,000 each to every Filipino with the goal of boosting consumption.

However, senators have yet to legislate the measure on their end on lack of resources to fund it.

Economic managers also rejected calls to increase spending just to sponsor Bayanihan 3, with the budget deficit seen swelling to P1.85 trillion, or 9.3 percent of the economy, this year.

As such, multilateral institutions like the World Bank and the Asian Development Bank appealed with governments to assess the need for a wealth tax not only to finance stimulus packages, but also to narrow the inequality gap.

In January, World Bank Governance Global Practice director Jim Brumby said about 100 million people sank into poverty due to the pandemic, proposing that policymakers enforce a wealth tax to fund interventions for the poor.

According to Forbes Asia, the collective wealth of the 50 richest Filipinos grew by 30 percent to $79 billion, or roughly P4 trillion, during the pandemic.