Is the Philippines’ New Tax Reform Proposal Really Anti-Poor?

Anti-poor. That is the single biggest knock on the proposed tax reform. And I must say it sure is a very effective slogan, if you are against it.

But why anti-poor?

The biggest feature of the proposed reforms is to lower the income tax rates for at least 75% to as much as 90% of all who pay income taxes, and put in place various “revenue-generating” measures, such as increase in excise tax on diesel and removal of certain VAT exemptions (example: low cost housing developers).

And as much as the reduction in income tax rates will benefit an overwhelming majority, a much larger number of employees are paid close to the minimum wage, and if you are paid the minimum wage you don’t pay income taxes, so there are no taxes to be cut in the first place. On the other hand, increases in excise tax on diesel, for example, will mean higher fuel prices at the pump, potential increase in costs for businesses, and ultimately, they pass that on to consumers. Therefore, the poor, who doesn’t pay income tax to begin with, may now have to deal with higher prices for food.

I disagree. And let me elaborate why.

Just this week, Forbes released its billionaires’ list, and we Filipinos will not be left out of the party, with 14 representatives to this prestigious list, and total wealth of around $45 billion. Wow!

Now if I had seen that list 10 or 15 years ago, “prestigious” is definitely not how I would describe it.

See a younger me, and same goes for probably many of the younger generation, sort of embraced the view that the poor remain poor because of them–that the rich people are the problem! Instead of being inspired by their ingenuity and entrepreneurial spirits (and the tens of thousands of jobs they have created), I will not be surprised if many hold a negative view towards the uber-wealthy, and that taxing them heavily, or “redistributing” their wealth to the poor, is the only solution.

Let’s just tax the rich? Well, let me go back to that $45 billion, which is over P2.25 TRILLION! And say we take the nuclear option: confiscate all their wealth!

Care to guess how this P2.25 trillion can keep government offices open? A staggering EIGHT MONTHS. With the programmed government budget of P3.3 TRILLION for 2017, taking all their wealth won’t even get us past the new year. The math doesn’t add up.

But how about the potential impact on lower-income families? Those can’t just be ignored and brushed aside, right? True. That is precisely why the government has already altered many of the initial proposals, such as vowing to keep the VAT exemptions for seniors and PWDs, and phasing in, in 2 to 3 years, the excise tax increase on diesel products. More importantly, it is also the poorest families who benefit and will continue to benefit from government services, be it healthcare, public education (tuition at state colleges and universities soon to be free), Pantawid Gutom programs, improved infrastructure and processes such as better roads and public transport.

The proposed tax reform basically lessens the income tax burden of the middle class. With the tax reform, everyone has to contribute, whether it’s paying directly, through (lower) income taxes, or indirectly, by paying VAT or possibly higher excise taxes that are included in the prices of big ticket items like SUVs and luxury cars, down to everyday stuff like powdered milk, instant coffee, instant noodles or a can of corned beef.

But when the tax burden is spread across, it ultimately benefits virtually everyone. A middle-level employee will now get a higher take-home pay, and either will invest the extra savings or spend it (which then flows back to the economy). An aspiring entrepreneur maybe more determined to start a business knowing that he or she will be taxed less (and earn more), and if more and more feel the same way then we could potentially see more business creation, which is the prerequisite to job creation.

The bottomline is, the proposed tax reforms are not anti-poor. On the contrary, the potential for increased job creation, coupled with bigger investments in public infrastructure and services, will help propel our economy further and ultimately provide the long-term solution to poverty.

Written by Mark Ong

Mark Ong, a certified public accountant with local and international accounting experience, is the Chief Finance Officer of Taxumo, an innovative, end-to-end online tax filing and payment platform that makes it easy for solo entrepreneurs, self-employed & licensed professionals, and freelancers track their income and expenses, as well as file & pay their taxes. Follow him on Facebook.

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