Is The Proposed Tax Reform Really Anti-Poor?

Is The Proposed Tax Reform Really Anti-Poor?

Bigger take home pay for a few compromise – that’s what the proposed tax reform is all about. As the tax paying workers in the country pocket bigger tax savings, the government will be losing a huge chunk of revenue from income tax collection. In order to address this compromise, certain adjustments were proposed.  

In order to recover the money that the government will be giving up to provide tax cuts to the majority of the working class, the tax reform package proposed higher taxes on some commodities. In an attempt to balance out the financial burden of the government and its people, the measures on how to make this happen have become a subject of debate.

Despite being fully approved by the house of representatives in May, the proposed tax reform has yet to be green lit. It’s currently in question and under review by the senate.

As with any new implementations by the government, there are pros and cons. This leads to the debate of whether the proposed tax reform is truly beneficial to those who need financial aids the most, or is it really anti-poor. After all, only 30% of Filipinos are registered taxpayers in 2016 according to BIR. Does this mean only 30% of Filipinos will actually benefit from the proposed tax reform?

Read on to find out what the debate is all about. As we lay out the facts, decide for yourself if the proposed tax reform will be beneficial to your wallet.

The highlights of the proposed tax reform

The proposed tax reform package covers everything from real estate taxes to income taxes. However, the most glaring coverage for the middle class and the poor population are the following:

Personal income tax

One of highly beneficial points of the proposed tax reform is the income tax package. It aims to provide relief to 99% of the tax paying workers in the Philippines by reducing their monthly income taxes (lessening the overall tax burden of the poor and the middle class).

Compared to our current income tax structure, employees with a salary of ₱250,000 and below annually will be exempted from tax. Thus saving most of the working class in the country a huge chunk of money from their paycheck. Meanwhile, those who are earning more will be paying less income tax.

As how the government has quoted it “the tax reform package will redesign the tax system in the country to make it fairer, more efficient, and simpler. At the same time, it’s going to help the government raise the resources that it needs to invest further in the country’s infrastructure and people.”

Proposed income tax reform

Annual income bracketProposed Tax Schedule for the second half of 2017 until 2019Proposed Tax Schedule for 2020 and onwards
₱0 to ₱250,0000%0%
₱250,001 to ₱400,00020% of the excess over ₱250,00015% of the excess over ₱250,000
₱400,001 to ₱800,000₱22,500 + 20% of the excess over ₱400,000 ₱22,500 + 20% of the excess over ₱400,000
₱800,000 to ₱2,000,000₱130,000 + 30% of the excess over ₱800,000₱102,500 + 25% of the excess over ₱800,000
₱2,000,001 to ₱5,000,000 ₱490,000 + 32% of the excess over ₱2,000,000₱402,500 + 30% of the excess over ₱2,000,000
₱5,000,001 and above₱1,450,000 + 35% of the excess over ₱5,000,000₱1,302,500 + 35% of the excess over ₱5,000,000
Source: dof.gov.ph

 

Sample computation

Single individual with no dependent.

Monthly salaryCurrent income tax Proposed tax reform
₱20,000₱2,683.84₱0
₱30,000₱5,349.78₱1,622.07
₱40,000₱8,331.03₱3,886.97
Computation is based on DOF’s tax calculator

Excise tax on sugar sweetened beverages

According to sec 150-a of the proposed tax reform, there shall be an excise of ₱10 on sugar sweetened beverages per liter volume capacity. The tax imposed on this item will be increased by 4% every year thereafter. The items covered by this excise duty are the following:

  • Soft drinks, soda, pop, and soda pop
  • Fruit drinks, punches or ades – non-alcoholic, flavored, carbonated or non-carbonated
  • Sport drinks – rehydrating drinks for athletes, as well as drinks that replenishes electrolytes and other nutrients in the body
  • Sweetened tea and coffee drinks
  • Energy drinks
  • All non-alcoholic beverages that are ready to drink and in powder form with added natural or artificial sugar
  • Caloric sweetener including sucrose, fructose, including high fructose corn sweetener, glucose or any artificial sugar substitute that produces a desired sweetness
  • Artificial sweetener such as aspartame, sucralose, saccharin, stevia, acesulfame k, neotame, monk fruit and cyclamates

However, the coverage of this excise tax does not include the following products:

  • 100% natural fruit juices
  • 100% natural vegetable juices
  • Yogurt
  • Meal replacement beverages (medical food) and weight loss products

Fuel tax excise

Based on the proposal, the tax on diesel will initially be ₱3 per liter, increasing to ₱5 on January 1, 2019 and to ₱6 on January 1, 2020. At present, there is no excise tax on diesel, which is widely used in both private and public transportation.

Fuel productDiesel fuel oilLiquefied Petroleum Gas (LPG)
Current tax rate0 per liter 0 per liter
Proposed tax for 2017₱3 per liter₱3 per liter
Proposed tax rates starting Jan 2018₱5 per liter₱5 per liter
Proposed tax rates starting Jan 2019₱6 per liter₱6 per liter
Source: pwc.com

It has been made clear that with the implementation of the wage-friendly income tax structure, comes an increased excise on fuel. An estimate of 10% per liter will be excised on fuel. Although the fares of public transportation would typically skyrocket when fuel prices increase, this may not be the case in this instance.
The government has placed measures to help the poor population cope with the fuel price hike brought about by the fuel tax excise. The most affected group will likely be the jeepney drivers. Thus, the government extends a program that will assists the jeepney drivers to cope with this financially, through “Pantawid Pasada Program”. This program aims to keep the fares at the same level by providing public utility vehicle drivers cash cards which will offset the increase in fuel tax.

Though majority of the middle class in the Philippines don’t have their own private vehicles, those  who do have their own vehicles are expected to offset the additional expenses through their income tax savings.  

Others in the poor and middle classes who will be affected by the ₱3 to ₱6 tax on LPG, which is typically used for cooking, can also offset their increased cost with their tax savings.

Who will be affected?

Everyone will be affected, but the effect will be different per demographic.

The affluent and those in the upper middle income class will benefit the most from the income tax savings. The savings they enjoy from the tax reform will definitely be more than their consumption of the taxed items listed above.

Most of the lower middle income earners will not be incurring any taxes on their income anymore. Thus, this alone will give them more spending power. The excise on the fuel will not necessarily affect, because jeepneys are not likely to increase fare prices with the aid of the government’s Pantawid Pasada Program.

However, sugar sweetened beverages will indeed have an impact to the middle class. Then again, the amount of savings that they get from being exempted from income tax can easily setoff the additional expenses. Depending on their consumpt, it will likely just eat up a small fraction of the income tax that they will pocket.

ItemPrice without tax excisePrice with tax excise
Softdrinks price₱18₱25
Amount consumed per month3030
Total cost per month₱540₱750
Salary₱13,000₱13,000
Income tax₱1,161₱0
Total taxed₱540 + ₱1,161

= ₱1,701
₱750

The brunt of the excise, especially the tax on sweetened beverages, would be on the minimum wage workers who do not pay income taxes. The additional tax would just add up to the household expenses with no additional savings. However, the government has an initiative (unconditional cash transfer) in place to subsidize these people’s needs to keep up with the inflation. The government will be providing cash assistance to households with low income, to offset the excise on affected commodities. Whether the initiative can efficiently remedy this dilemma can likely be gauge in the next year or so.

What can Filipinos do?

Although the income tax package is overall positive to the taxpayers and the economy, certain compromise must be made in order to balance out the benefits among the many income classes of society.

According to Socioeconomic Planning Secretary and NEDA Director- General Dr. Ernesto M. Pernia, mitigating measures in the form of subsidies will be rolled out to aid the poor. The government will classify eligible individuals and they will be given ₱2,400 a year to cushion the impact of higher transport prices once the excise tax is imposed.

Currently, the tax reform package is still on the negotiation table. The excise tax on fuel will be used as a bargaining chip to ensure that everyone (especially the poor) will not be burdened by the excise tax on sugar sweetened beverages.

The tax reform package continues to be a developing story that many are hoping to come out as beneficial for everyone despite of few compromise. Look out for more analysis on the topic as and when more updates are released.

 

Image from terrytreks.com

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