Neophyte Sen. Juan Edgardo “Sonny” Angara’s proposal to restructure the individual and corporate income taxation system in the Philippines has struck a chord in many quarters. The progressive tax scheme that we have in place, he says, has remained unchanged since the mid-1970s, when P500,000 would be worth P10 million in today’s money.
Thus, I am taxed by 32 percent or one-third of my income because the State still thinks that the P500,000 I earn each year is nearly P10 million!
It is the middle class that suffers the brunt of the income tax grind because most if not all in this tier are employees or fixed-income earners like me whose monthly take is automatically deducted by 32 percent, representing tax withheld that will be transmitted to the Bureau of Internal Revenue.
Whereas the poor are not taxed because the income they earn, if they do earn at all, is way below taxability, the rich owners of conglomerates and multi-million peso companies are given tax incentives that help cushion their corporate income tax payables to the Bureau of Internal Revenue.
It is right on the tiny middle class, which can fall into the poverty line in times of economic crisis, that apparently the income tax scheme has been squeezing dry.
Some quarters are proposing that we follow the example of countries that have adopted a low flat tax scheme. Macau, you will be surprised, only withholds 12 percent as tax, regardless of income, while Hong Kong deducts just a mere 15 percent of the same.
Senator Angara wants to peg the individual and corporate income tax to 20 percent which will translate, according to him, in a P40 billion-peso loss in revenue, the same amount believed to have been lost in pork barrel funds that went to the fake nongovernmental organizations that Janet Lim-Napoles allegedly set up.
He also wants to include college tuition fees of up to P40,000 as tax deductible. After all, the State does not provide universal scholarship coverage to its youth who want a college degree.
Even state colleges and universities still charge tuition. So why should the state extract taxes from all who work after obtaining a college degree when the State was barely present when these income-earners and their parents had to sell their farms and carabaos to pay for college tuition?
We do not even have student loans the way the United States affords its youth in order to obtain a college degree which can then be paid after they land a job.
The windfall is an obvious increase in Value Added Tax collections. With much more take-home pay following a rollback in withholding tax, fixed-income earners will have more purchasing power and therefore result in increasing government revenue through the VAT on goods that these individuals can now purchase some more.
Rather than throw away our money to corruption and enrich a few, a lesser income tax will mean that each individual income earner can splurge as much as he or she wants because that is his or her hard-earned cash. Why should they pay more only to lose to corruption?
I therefore urge everyone to support Senator Angara’s bills and work with the congressional representatives to really revamp the income and corporate taxation scheme in this country. The last time this was done was in 1975. It is time to stop squeezing the middle class dry.
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