3 Ways the Government Can Decrease Income Taxes
The call for a lower income tax rate has always been a hot topic among professionals and the working class – in various channels. Who does not want lower taxes? Lower taxes mean you will have a higher spending capacity to basically buy items that you need.
Article XI, Section 1 of the 1987 Constitution states, “Public office is a public trust. Public officers and employees must, at all times, be accountable to the people, serve them with utmost responsibility, integrity, loyalty, and efficiency; act with patriotism and justice, and lead modest lives.”
Though it has been brought up and promised by various authorities over the years, there are still no concrete steps outlined for change.
To see how our burden can lessen with lower income tax rates, here are three ideas that can be implemented by the authorities:
Review the Graduated Tax Calendar every year
Inflation is not uncommon and between 1997 and 2007 the inflation rates have dropped from 9.20% to 2.90%. That means (in 2007) for every P100 you have in your pocket, you would need to have P102.90 in 2008 just to buy the same goods you bought in 2007. Although it is true that minimum wage increased by 138% from 1997 to 2014, it is important to note that inflation from 1997 to 2013 increased consumer prices by 133%.
The graduated tax rate scheme as set out by the National Internal Revenue has been using the same income range since 1997, if not older. Considering the ever increasing inflation rate and the people’s shrinking purchasing power, the graduated tax calendar should be reviewed every year to reflect its real value.
Inflation Rate in the Philippines Year 1995 to 2013.
Increase the Tax Threshold for Bonuses to at least P80,000
Most people are not aware about this, but any amount in excess of P30, 000 in annual bonuses is taxable, according to the ruling by the BIR in 1994. However, in 1994, the lowest salary of a government employee is P2,800 per month, and in 2014, it is P9,000. In view of this huge discrepancy, the tax threshold should be adjusted accordingly. Due to this archaic ruling, most professionals are somehow discouraged by year-end to look at their paychecks because it also meant a huge chunk taken away.
Senator Recto stressed, “We should not punish a worker’s hard work and dedication with a tax.” So why P80,000? Over the years consumer prices have increased around 167% (1994-2014, Computation #2) because of inflation. If we will multiply the existing threshold for 13th month pay of P30,000 to the increase of consumer prices, we will arrive at P80,000, this is to reflect inflation for 20 years.
Speaking of hard work, highly skilled professionals prefer working abroad because they are compensated generously for the same amount of work they do here in the Philippines. In fact, the number of immigrants versus Filipinos Overseas Workers in 2011 is greater.
Introduction of Millionaire’s Tax
In the Philippines, individuals who are earning more than P500,000 a year are under a tax rate of 32% — a high percentage by the standard of most Filipinos. If you are working in a multinational company as one of its directors, you may even be in the same tax bracket as your CEO!
However, the rich does not just get richer with their salary or from one source of income. In the Philippines, the wealth from the rich comes from either investment in property or stocks, which is only taxed at 5% to 10%. And for mutual funds and time deposits, the gains can be tax exempted, provided if they are held for a minimum of five years.
To bridge the gap between the rich and the poor, Millionaire’s Tax should be introduced in the country. It is a concept by Warren Buffett and has been a discussion of many critics and journalists. In this regard, the Millionaire’s Tax (30%) would come into play to tax people who are earning millions through property and stocks. This will ensure a fairer tax system.
The reason that income taxation rulings are heated debates is because it affects every working person in the country. The public is of the view that the income tax system should do a better job in balancing between the government’s operations and the welfare of its taxpayers.
With a fairer and more up-to-date tax law, the Philippines may even be able to tackle the brain drain problem it is currently facing. A better tax system and rules can help lessen the burden of the people and provide a more comfortable lifestyle that all Filipinos want to achieve.
Do you think we are ready for a more robust income tax scheme and system? What other ways can our income tax law improve?
Disclaimer: This article only tackled how the authorities can help an average modern Juan.