Tax Reforms

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As the Tax Reform for Acceleration and Inclusion Act (TRAIN) which contains the first part of the Department of Finance’s (DOF) proposed Tax Reform Package advances in Congress, research group IBON reiterated that this legislative proposal remains biased for the rich and burdens the poor.

With the majority approval of the House of Representatives committee on ways and means, the tax reform proposal will now move to the committee on appropriations for review before transmittal to the House plenary for second reading and debates.

The proposed tax law essentially seeks to raise an additional Php400 billion by 2019 to fund increases in infrastructure spending for the administration’s so-called ‘golden age in infrastructure’. The proposal purportedly intends to lower personal income taxes while expanding the coverage of value-added tax (VAT) and imposing additional taxes on oil and sweetened beverages.

IBON however reiterated that with this proposal, wealthy families will be paying less income taxes and other taxes, while the poor majority will face higher taxes on goods and services.

The group had earlier pointed out that the package includes a reduction of income, property-related taxes and capital income taxes to the benefit of the wealthiest.

The group also initially estimated that in the DOF’s Tax Reform Package the richest will be paying around Php178.3 billion less in reduced personal and corporate income taxes, estate and donor taxes, and capital income taxes. Consumers, meanwhile, will be paying about Php341.6 billion more for the VAT to be charged on previously exempt items and higher excise taxes on petroleum products. Additional taxes will also be paid by consumers for every sugary beverage they buy. The Tax Reform for Acceleration and Inclusion bill is a key component of the DOF’s overall tax reform package.

These contradict the DOF’s claim that its tax reform is progressive and pro-poor, according to IBON. The group repeated that the package remains regressive and elitist as it offsets lower taxes paid by the wealthiest Filipinos by putting additional tax burden on the poor majority of consumers amid their already very low incomes and insecure livelihoods.

LowerTaxesCASER

Pres. Rodrigo Duterte recalled the government’s peace negotiators from negotiations with the National Democratic Front of the Philippines (NDFP) until being given “compelling reason” to resume talks. Research group IBON, however, points out that the most compelling reason for having peace talks are the economic and political reforms on the agenda that can address the roots of armed conflict. Ending the peace talks with the NDFP also ends talks on important social and economic reforms which makes the prospects for their implementation and achieving benefits for the people dimmer.

IBON noted that ceasefires are at most only momentary respites from fighting. The government and the NDFP reaching agreements on genuine reforms, on the other hand, are among the clearest steps towards peace based on social justice. The government and NDFP each prepared their proposed draft for a comprehensive agreement on social and economic reforms (CASER) and exchanged these in mid-January 2017. IBON reviewed these and compared their respective proposals for key reforms.

Photo from International Institute for Environment and Development

While the unorthodox Pres. Rodrigo Duterte gained popular support due to its pro-poor pronouncements and promise of change, research group IBON said that the neoliberal economic agenda prevails as  Duterte’s economic managers and other dominant groups push big business-biased/free market-oriented policies over people-centered reforms.

Nevertheless, IBON also said that the ongoing peace negotiations between the Philippine government and the National Democratic Front of the Philippines (NDFP), of which social and economic reforms and political and constitutional reforms are the next substantive agenda, remain an opportunity to push steps that can benefit the Filipino majority.

IBON conducted its 2016 yearend analysis of economic and political trends during the Duterte administration’s first six months In its briefing paper, the group noted the following as among the glaring socioeconomic challenges that persist:

  • Contracting agriculture.The fastest growing sectors wereconstruction and real estate followed by trade and manufacturing,but agriculture contracted.  The share of agriculture in the economy has shrunk to 8.5%. The production sectors consisting of agriculture, manufacturing, construction and mining slightly declined to 38.5%, the smallest recorded shares in the country’s history.
  • Worsening inequality.The net worth of the 40 richest Filipinos grew by almost 14% between 2015 and 2016 and the profits of Philippine Stock Exchange (PSE) by over 18%; real minimum wage in the National Capital Region (NCR), a proxy for workers’ wages, fell by almost 3% in the same period.
  • Deteriorating jobs. Two out of three employed (63%) or 24.4 million Filipinos are non-regular, agency- hired, informal sector, or unpaid family workers, meaning low-paying and insecure work with poor or no benefits. One of three (34.5%) rank and file workers are non-regular workers. Initial IBON re-estimates of labor force survey figures are over four million unemployed Filipinos and an unemployment rate of over 9%. Underemployed number 7.5 million with an 18.3% rate in 2016. Taken together there are 11.5 million who are without work or are still seeking more work
  • Widening wage gap.  Daily NCR minimum wage remains at Php481. According to IBON estimates, this is barely half of the family living wage (Php1,119 as of 2016) or the amount needed by a family of six for their basic needs. The wage gap again widened from 55% (2015) to 57% (2016).
  • Prevalent poverty. Government reported a lower population poverty incidence of 21.6%, counting 21.9 million poor Filipinos for 2015, or 1.8 million less compared to 2012 figures. However, this employs a very low poverty threshold of just Php60 per person per day based on a conservative food threshold and an outdated estimation of non-food expenses, thus reflecting the situation only of Filipinos in extreme poverty. IBON estimates some 66 million poor Filipinos struggling to survive on around or even less than Php125 per day. IBON’s latest national opinion survey meanwhile showed seven of 10 Filipinos rating themselves ‘poor’.
  • Elusive right to education. . The additional Php8.3 billion allocated is short of being able to give free tuition to all 1.7 million students enrolled at all levels in State Universities and Colleges (SUCs), and does not cover other considerable expenses for registration and other pertinent fees. IBON estimates that an additional Php4.4 billion is needed to provide free tuition for all SUC students. The group also said that since the added budget depended on the discretion of lawmakers and the availability of funds, it may not last beyond 2017. The Commission on Higher Education (CHED) has even announced that not all SUC students will be covered.
  • Shallow ‘universal’ health coverage.  While an additional Php3 billion was reportedly allocated to the Phililppine Health Insurance Corporation (PhilHealth) to ensure coverage for all Filipinos, the support value of PhilHealth remains at 50% while the balance of 50% is still paid out of pocket. Also, the poor and sick remain burdened with hospital expenses as 40% of the number of claims paid to indigent/ sponsored program beneficiaries still needed co-payments. Moreover, the  no balance billing policy for indigents is only applicable to increasingly underfunded government hospitals.
  •  People-centered reforms opposed. While additional support for national irrigation has been approved, the Duterte government’s economic directors are opposed to a moratorium on land use conversions, which further institutionalize land grabbing to the detriment of farmers. The economic managers have also been opposed to granting the Php2,000 pension to the elderly, arguing, among others, that it is anti-poor. Earlier, the Duterte administration clarified that by ending contractualization it meant prohibiting the practice of terminating workers before they assume regular status, thereby still allowing all other forms of contractualization where workers are denied the benefits naturally accorded to regulars.
  • Rich relieved, poor burdened further with tax reform package. The administration plans to fund its infrastructure expansion through a consistently regressive tax plan, which will relieve the richest and big corporations. But the poor will be further burdened through additional taxes on a wider range of goods such as fuel products, and  increased value-added tax (VAT).
  •  Unaddressed roots of “war on drugs”. While there have been 2,166 deaths of ‘drug personalities’ during police operations aside from at least 4,049 more victims of drug-relatedextrajdicial or vigilante-style killings, the socioeconomic roots of the drug problem remain largely unaddressed.

According to the group, the new government may appear different from its predecessors but there are very few indications that substantial change is underway. Under the same profit-driven, market-oriented economic policy framework, the country’s resources remain concentrated in the hands of the wealthiest families and corporations. Despite the President’s strong pronouncements, an independent foreign policy has not been forged; the country has not broken free from foreign powers with geopolitical interests in the Philippines whether it be, for instance, the US or China. Traditional politics prevail. Relatedly, the administration repeatedly dangles authoritarian measures, putting at risk assertions of democracy that are gaining ground.

Nevertheless, IBON said that while prospects for change are getting dimmer rather than brighter, it remains to be seen how the peace negotiations could still possibly effect initial people-centered reforms. It is an opportune time to challenge the administration to, beyond paper, step out of its neoliberal economic and undemocratic political tradition in the direction of crafting policies in the interest of the majority of poor and marginalized Filipinos, said the group.

 

 

oil-cartoon_ibon

 

Research group IBON said that the fuel excise tax being pushed by President Duterte’s economic managers will increase taxes on already burdened poor and low income wage earners. The group said that the Duterte administration should redesign the tax system to tax the richest who have the huge ability to pay more and relieve the majority who are struggling on low incomes.

The government plans to impose an excise tax on petroleum products to help generate revenues needed to fund the Duterte administration’s infrastructure projects. Previously tax-free fuel items such as diesel
used by buses and jeepneys, cooking gas, and bunker fuel used to generate electricity will have a tax of P6 per liter. Meanwhile, tax on gasoline will rise from Php4.35 to Php10 per liter. This will be in addition to the 12% value-added tax these products are already subjected to.

IBON said that this fuel excise tax is among proposed reforms under the government’s neoliberal tax package that will add further hardship to already struggling ordinary Filipinos.  Other reforms include the proposed decrease in the list of VAT-exempt items, and excise tax on sugary products.

These additional taxes will increase the prices of basic goods and services, and mostly affect poor and low-income consumers that are already struggling to pay for food and other basic needs. According to the September round of the IBON National Survey, seven out of ten Filipinos considered themselves poor. Also in the past three months, the survey showed that 64% of Filipinos had trouble paying for electricity and 53.3% had trouble buying enough food.

IBON said that the Duterte administration should instead focus its efforts on more efficient and aggressive tax collection on the wealthy and big corporations. Revenues generated should then be prioritized to
fund much-needed public utilities and social services. ###

Ng www.ibon.org.
Research group IBON remarked that the Department of Finance’s (DOF) proposed tax plan essentially remains elitist and is inconsistent with President Duterte’s pro-poor stance. Following the president’s lead, government should be brave enough to tax the richest businesses and families instead of burdening the poor with new taxes.
The DOF on Monday submitted to Congress the first set of its proposed tax reform program. The plan includes reduction of personal income tax and the expansion of the tax base by loosening VAT exemptions. Also among the proposals is adjusting the excise tax on petroleum and automobile products.
According to IBON, the poor will suffer higher prices of goods and services, including transport fares, the new VAT, oil tax and sweets tax.
The DOF’s argument that the new higher taxes are progressive is unsound, said the group. The DOF ​does not seem to realize that a peso for the poor is worth so much more to them than even hundreds or thousands of pesos for the rich, said IBON.
The additional tax burden that is being put on the poor majority of consumers is unjust amid their already very low incomes and insecure livelihoods to begin with. The administration’s economic managers should not be so reluctant to tax the biggest corporations and wealthiest families and businessmen  to raise revenue for social and economic services, IBON said.

from GMA News
from GMA News

Research group IBON said that the World Bank’s recent offer to assist the Department of Finance (DOF) with its tax reform plan, although not surprising, is unwelcome news. The World Bank with twin global financial pillar International Monetary Fund (IMF) has long been at the forefront of designing the Philippines’ regressive tax system, including providing incentives for liberalization. This has primarily benefited the interests of the wealthiest and big corporations at the expense of poor Filipinos, said the group.

IBON said among the conditions of World Bank structural adjustment loans and IMF stabilization programs since the late-1980s was the imposition of the value-added tax (VAT) and lowering of income taxes including on the rich. For instance, former President Cory Aquino, under the advisement of the IMF-World Bank, swiftly passed Executive Order (EO) 273 which applied a 10% VAT on basic commodities. The VAT was later expanded under succeeding presidents Ramos and Arroyo also with pressure from the IMF-World Bank.

The World Bank’s latest offer to the DOF is part of its long-standing advocacy of taxing the poor while unburdening the country’s wealthiest oligarchs as well as large foreign and local firms, said IBON. It is the tenet of the international financial institutions that taxing the ultra-rich and big corporations is a disincentive to their wealth generation and to economic activity. Instead, the World Bank and IMF promote lowering direct taxes while increasing taxes on goods and services. Lower taxes such as providing tax holidays and incentives to big business and breaking down import taxes serves their economic liberalization policy. Meanwhile, taxing consumption is administratively easy, thus the World Bank pushes for indirect taxes like the VAT to generate revenue foregone from lower taxes on the wealthy oligarchs and big firms, said the group.

According to IBON, the DOF’s proposed tax reform plan already falls in line with the World Bank’s regressive tax schemes and could become worse should the government take up the World Bank’s offer. The group noted that the DOF plans to lower taxes on wealthy oligarchs and foreign and local corporations via lower income and corporate taxes, property-related taxes, and capital income tax. Meanwhile, the foregone revenue from this will be offset by hiking taxes to the poor through higher prices from the expansion of VAT-able items, higher fuel excise taxes and a new sweets tax.

IBON said that Pres. Rodrigo Duterte should be wary of the World Bank’s endorsement and offer of assistance with the proposed tax reform plan that relieves the rich by burdening the poor. Instead, the Duterte administration should focus on more aggressive tax collection of the wealthy and corporations to help fund much-needed social and economic services for ordinary Filipinos, said the group. ###

Economy not going strong

Research group IBON said that the Department of Finance’s (DOF) proposed tax reform program relieves the rich and burdens the poor. The group said that this will worsen inequality in the country and should be replaced by a tax program that taxes the rich instead and is backed with the required political will.

The DOF proposed tax reform program seeks to raise an additional Php600 billion by 2019. IBON noted that it will do this by raising taxes on the country’s poor majority and reducing taxes paid by the rich and big corporations

​According to the group, the rich will benefit from lower income taxes, property-related taxes, and capital income taxes:

  1. The top personal income tax rate will go down from 32% to eventually just 25 percent. Around 6.7 million deserving wage and salary earners also stand to benefit from the DOF’s plan to update 19-year-old tax brackets. These will result in Php139.0 billion less revenues for the government in just the first year of implementation.
  2. The corporate income tax will go down from 30% to 25 percent. Corporations will pay Php34.8 billion less in income taxes.
  3. The tax rate on property-related transactions of the wealthy will be cut. The estate tax of 20% will go down to 6% of the value of property being transferred. Donor taxes and transaction taxes on land will also be cut. The rich will pay Php3.5 billion less in estate and donor taxes.
  4. The tax on interest income earned on peso deposits and investments will also go down from 20% to 10 percent. The rich will pay Php1.0 billion less in capital income taxes

​IBON observed that the DOF plans to offset lower taxes paid by the wealthiest Filipinos by increasing taxes on the poor majority. The poor will suffer higher prices from value-added tax (VAT) being charged on previously exempt items, higher excise taxes on petroleum products, and a new sweets tax:

  1. The 12% VAT will be charged on the widest range of consumer items in the country’s history with exemptions on just very few necessities like raw food, education and health. Consumers will pay Php163.4 billion more for the same goods and services.
  2. There will be higher excise taxes of Php6-10 per litre or kilogram on diesel, LPG, kerosene and the entire range of oil product prices. Consumers will pay Php178.2 billion more when they buy oil products or pay for correspondingly more expensive goods, services and transport fares.
  3. The sugar excise tax starting at Php5 per kilogram will increase the prices of sugary foods, fruit drinks, sodas, sweetened tea and coffee, sports drinks, and other sweetened products. Consumers will pay Php18.1 billion more for the sugary products they buy

​IBON said that the administration’s economic managers are using Pres. Rodrigo Duterte’s current popularity to push an unpopular pro-rich neoliberal tax agenda. But the people need vastly improved public and economic services. This should be financed by those who have already accumulated so much and not by those who have so little as it is, said the group.

From youronevoicecanmakeadifference.wordpress.com

by Sonny Africa

(Second of Two Parts)

Read Part 1

Significant additional revenues can be raised with some basic reforms in the country’s regressive and pro-elite tax system. This is the most rational and sustainable way of ensuring that there are resources for social and economic spending biased for the needs of the poor majority of Filipinos.

Changing direction

What does a progressive tax system look like? Some elements of the proposed tax reforms can be useful as part of a genuinely progressive tax reform program.

It is useful to remove redundant fiscal incentives on corporations and to make these more transparent, targeted, performance-based, and time-bound. The DOF estimates up to Php50 billion in foregone tax revenues from special rates given to large firms; some Php33.8 billion is expected to be gained from rationalizing fiscal incentives. It would however be even better if more of these incentives were given to Filipino industrial firms rather than to the foreign and commercial or service enterprises that dominate the local economy.

It is also useful to adjust the valuations of properties to earn more from real property taxes. The DOF has for instance reported that the assessed LGU market value on Ayala Avenue is just Php40,000 per square meter even if actual market value is at least Php400,000 per square meter. This has helped make land developers among the richest oligarchs in the country. Up to Php43.5 billion can be raised from more accurate valuations on real properties.

Tax administration reforms in the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) are sorely needed. The government’s tax efficiency is among the lowest in the region – meaning that it is not collecting as much as it should at current tax rates. The government’s tax effort, or total tax revenue as a share of gross domestic product (GDP), is around 12.4% which is slightly higher than Indonesia’s (11.8%) but much lower than in Vietnam (24.3%), Thailand (17.1%), Malaysia (15.3%), and the average for East Asia and the Pacific (16.3%). This is despite the Philippine’s VAT (12%), corporate income tax (30%), and highest personal income tax rate (32%) being mostly higher than in these countries. This is also an indicator of how much corruption has to be resolved in the BIR and BOC.

Likewise with budget reforms to reduce leakages from corruption and inefficiencies. But then claims at budget reforms are undermined by allegations that the 2017 budget retains pork barrel for legislators and still gives the executive branch undue discretion over trillions of pesos of special purpose funds.

Relaxing bank secrecy for fraud cases potentially allows the BIR to more fully audit people who do not pay the right taxes. The DOF explains that 40% of income comes from professionals and the self-employed but they pay only 20% of income taxes, indicating high tax evasion. Including tax evasion as a predicate crime to money laundering is also potentially useful against tax evaders. However the danger in the Philippine context of severe inequity is that these just end up being used against middle class taxpayers rather than the very rich and well-connected. These expanded powers may also be abused for self-serving political purposes, such as how the previous Aquino government apparently used anti-money laundering powers against former chief justice Renato Corona and other political opposition.

Right direction

But the most important tax reform is really to come up with a genuinely progressive program that taxes those few but with a huge ability to pay more while relieving the overwhelming majority who are struggling with such low incomes. The country’s tax system should be designed according to the country’s concrete condition of severe inequality and widespread poverty – not from what is seen as ‘doable’ for being unopposed and supported by the rich and by big corporations.

Some 17 million Filipino families (80% of all families) earn at most around Php20,000 a month; the poorest half (53%) try to live off less than Php13,000 a month and the poorest fifth (20%) on an average of less than Php5,600 a month. These poor and low income families should be taxed as lightly as possible while being given as much publicly-provided social and economic services as they need.

On the other hand the country’s richest 326,000 families (1.5% of all families) earn an average of Php106,000-191,000 a month. The CEOs of San Miguel Corporation (SMC), First Philippine Holdings (FPH) and Meralco earn Php5.0-5.9 million a month. The country’s 50 richest oligarchs have a combined net worth of US$79.5 billion or Php3.8 trillion at current exchange rates. There are also at least 690 “ultra high net worth” Filipinos with at least Php1.4 billion in assets each. The country’s top 1,000 corporations meanwhile made over Php1.1 trillion in combined annual profits and the 265 Philippine Stock Exchange (PSE)-listed firms some Php581 billion.

These rich families and large corporations are the biggest beneficiaries of the Philippine economy, natural resources, government, and the labours of the Filipino working people. They can and should pay more taxes to fund social and economic services for the majority.

Taxes on income, wealth, property, investments and the biggest corporations have to be increased rather than decreased. Paying taxes are the most systematic expression of social responsibility and far superior to individual charity or even so-called corporate social responsibility (CSR). The worsening inequality in the country indicates how such voluntarism is not really effective in distributing gains from the economy.

For instance raising income taxes on just the richest 1.5% of Filipino families will not only reduce the extreme inequality in the country but also raise some Php91 billion. The richest 156,000 or 0.7% of families had a cumulative income of  Php356.9 billion in 2012 with an average annual income of Php2,287,836. Taxing just an additional 20% of this income will raise Php71 billion. The next richest 170,000 or 0.8% of families had a cumulative income of  Php198.4 billion with an average annual income of Php1,271,484. Taxing just an additional 10% of this income will raise Php20 billion.

Higher top personal income tax rates are needed. It will be recalled that these reached as much as 70% in 1973 and 60% in 1982 before being cut to 35% in 1986, 33% in 1999, and finally to 32% in 2000.

Higher corporate income tax rates on large corporations are also needed. For instance, restoring the corporate income tax to its 35% rate before 2009 would also immediately raise at least Php20-30 billion. Micro, small and medium enterprises should meanwhile be supported with lower income taxes than charged to large corporations. This is aside from how as much as Php409 billion more can be raised from aggressive collection of corporate income taxes especially from large corporations. IBON estimates up to Php780 billion in potential tax revenues from firms in 2012 yet only Php371 billion was actually collected by the BIR.

Wealth should be taxed when it is accumulated or transacted such as through higher wealth, capital gains and inheritance taxes. Actually more effective collection of estate taxes on super-rich families could already raise hundreds of billions more in revenues. The BIR’s average annual collection of estate taxes of less than Php600 million in the decade 2000-2009 compares poorly with the Php3.8 trillion in wealth accumulated today by the 50 richest Filipino oligarchs and their families.

The distractions and indulgences of the rich should also be taxed more. It is possible to design a tax regime of excises taxes or higher VAT on luxury spending such as on high-end automobiles, yachts, jewellery, five-star hotel bars and restaurants, casinos and others. The DOF has estimated at least Php7.7 billion in revenues from taxing luxuries but it is not clear how this will be raised.

Taxation for development

Progressive tax reforms raises government resources for directly providing free or affordable education and health, financing public utilities in water, electricity and transportation, subsidizing pensions and other social security benefits, and providing for other socioeconomic investments. It also lessens inequality and may contribute, even if only slightly, to eroding the economic base that oligarchic elites wield to dominate Philippine economic and political life.

But such tax reforms are of course just part of an overall development policy offensive. Complementary economic reforms are crucial including real asset redistribution, fair distribution of gains from growth, and the general direction of national industrialization for the economy. The solid and equitable economic growth from these will also make government revenues increase even more.

The administration’s economic team sees a window of opportunity to push this regressive neoliberal tax program. The team senses the public clamor for changes in the traffic situation, bad public health and education, government red tape and bureaucracy, poor government services, and others. They are also aware that the public perception is of real change happening under the Duterte administration – coming from his unorthodox manner, open criticism of the country’s oligarchs and even the United States (US) government, the appointment of Leftists in his cabinet, the determined push for peace talks with armed revolutionary groups, enabling freedom of information by executive order, coming down hard on illegal drugs, and others.

The economic team will exploit this desire for change with the argument that its tax program will give more and better public services. But while it is true that the people need vastly improved public services this should be financed by those who have already accumulated so much and not by those who have so little as it is. The Duterte administration proclaims a pro-poor bias and is challenged to muster the political will to tax the rich. — IBON Features

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