Danilo Araña Arao
Philippine Daily Inquirer (Youngblood), 14 March 1995, p. 7
I CONSIDER it a sign of old age (and extreme poverty) when a person starts worrying about taxes. From the way I've been fidgety on my chair as I write this, I guess I'll have to move to Golden Acres in a day or two.
What's bugging me? I recently got hold of HB 14505 which seeks to simplify the computation of the personal income tax. A House insider confides that this bill was passed on second reading in the middle of last month.
It is quite easy to read, since it is only two pages long. I took interest in its content since I wrote an article last month on the original version of the bill (HB 10717) authored by Rep. Renato Diaz. As it turns out, HB 14505 incorporates the comments and related bills of other legislators.
Anyway, HB 14505, titled "An Act Adopting the Gross Income Taxation for Individual Taxpayers," seeks to restructure (read: abolish) the present tax brackets by imposing a uniform tax rate of 15 percent on the income of citizens or residents of the country. The present tax system levies varying percentages, ranging from 0 percent to 35 percent, depending on one's income.
Under the bill, there will be a uniform personal exemption of P60,000. (We all know that present personal exemptions depend on one's civil status: P9,000 for single, P12,000 for head of the family and P18,000 for married individuals.) This means that a single worker and a married colleague (without children) earning the same income will be paying the same amount to the BIR.
For non-resident citizens like overseas contract workers, a uniform 5 percent tax rate shall be imposed, along with a personal exemption of $20,000.
Under the bill, people earning P5,000 monthly or less will not be paying taxes anymore. This would be good for those earning minimum wages, as well as most NGO workers I know. I guess it would also be a big relief for homemakers who budget their loved one's meager income (or whatever's left of it).
In terms of income decile, it appears that only those belonging to the eighth, ninth and 10th deciles will be affected by HB 14505. The following was lifted from the 1991 Family Income and Expenditures Survey of the NSO:
Yun naman pala, eh. So why do I feel uneasy?
Well, for one thing, the table does not mean that only the ultra-rich of Forbes Park and Corinthian Gardens will end up paying taxes, since middle-class families are included even in the 10th decile. Those in the eighth decile are actually in the lower-lower middle class, based on the average income. (With a P239 daily cost of living, is it possible to survive on only P6,000 a month?)
Okay, so the middle class will be hit. You may then argue that we ought to be glad that they will be paying less.
But that is exactly the point. I am fidgety right now because they will be paying less. How's that again? The middle class will be paying less, and the ultra-rich ones will be paying even lesser.
Let's assume that you are single, typical middle class, earning P7,500 monthly, or P90,000 a year. Under the present system, you must give P10,065 to the BIR. With HB 14505, you will only have to pay P4,500 in taxes. Nothing wrong here, di ba?
Now, imagine that you are the Central Bank governor, still unmarried, who earns P150,000 monthly or P1.8 million per year. At present you pay P574,025 in taxes. Once the new bill is implemented, you will have to shell out P261,000, or roughly 120 percent less than what you used to pay.
So what's the point of this calculator-guided exercise? Simple. As your income gets higher and higher, you get to pay smaller and smaller. Although there are substantial reductions in the personal income tax of the middle class, the rich people stand to benefit most from the new bill.
Shouldn't we get more taxes from the rich? Why should a single tax rate apply to middle-class families and rich ones alike?
When a friend in the House confided that this was done to generate more revenues since there will be fewer cases of evasion given the lower taxes, I can only marvel at the optimism of our government officials. Recently it was reported in the media that the BIR is targeting a 25-percent increase in collections this year. Oh, well...
It think that HB 14505 reflects the perception of government officials that taxes are only meant to generate funds. In a severely maldeveloped country like ours, it is imperative to look at taxes not only as a revenue mechanism, but also as a primary instrument of redistribution. Simply put, by collecting more taxes from the financially well-off, we can actually redistribute wealth and income. This is what we call progressive taxation, which should be done in the context of government initiatives to give a preferential option to the needy.
But then again, you may ask: Should we expect these things from the present government? Your guess is as good as mine.
Danny Arao, 26, teaches Political Science at De La Salle University.