IN the face of President Benigno Aquino’s refusal to lower income taxes, Socio-economic Planning Secretary Arsenio Balisacan admitted Monday that the country’s tax system is regressive, and that middle- and low-income groups bear the brunt of the cost of government.
Testifying before a Senate hearing on the P22.6-billion budget for the National Economic and Development Authority, which he heads, Balisacan said the country’s tax system may appear progressive on paper but it is actually regressive.
“It is the low income groups paying higher taxes proportional to their income,” Balisacan said, noting that the country’s ability to collect taxes should also be improved because of growing needs in infrastructure and other key economic sectors.
“You just have to find sources of revenue. We also have to deepen the tax base as you try to correct the inequities in the tax system,” Balisacan said, adding that reforms in the tax system should be made with a view to all interconnected aspects.
“I do not like to see this as either-or,” Balisacan replied when asked whether new revenue sources should first be found before considering proposals to lower income tax rates.
“We should not be taking this issue on a piecemeal basis because it is far easier from a political point of view to get those taxes reduced, but far more difficult to navigate efforts to find new sources of revenues such that these are not burdensome to the low income groups,” he said.
But Senator Ralph Recto argued that the P30 billion that economic managers claim will be lost due to income tax rate cuts will not even make a dent in the national government’s P3-trillion budget.
“Next year the budget will be P3 trillion. Will P30 billion make a dent? No, it will not,” Recto said, adding that in 2014 the national government even failed to spend P500 billion.
“The fact is that that will also be spent and that will move the economy. The global economy is weak, what is really important is domestic consumption,” Recto added.
In the proposed tax reform bill submitted by Marikina Rep. Romero Quimbo, those who are earning P180,000 and below annually are exempted from paying taxes while those who earn from P180,000 to P500,000 would pay 9 percent.
Individuals who earn from P500 000 to P10 million a year would pay 17 percent, while those exceeding the P10 million mark will pay 30 percent.
Under Senator Juan Edgardo Angara’s version, those whose annual income are up to P500,000 will be exempted from paying tax.
The current law requires those earning P500,000 and higher be taxed at the rate of 32 percent.
The Finance Department earlier projected that the government would lose P29 billion in revenues if the new tax rates are adopted.
The department also submitted a proposal seeking to increase the value-added tax from 12 percent to 14 percent.
But Balisacan said a higher VAT rate would not be enough to offset losses from lowering income taxes.
What the higher consumption tax will do is increase revenue, but not lower taxes. “That is not going to be sufficient,” he said
In the Palace, presidential spokesman Edwin Lacierda said he received a text message from Finance Secretary Cesar Purisima saying that the government is open to “holistic reform” that will include an adjustment in the tax brackets and the rates, but in a “fiscally responsible” way that avoids “the slippery slope of populist policies.”
Lacierda could not say, however, what a “holistic reform in the adjustment of rates and brackets.”
“We’ll send [your] query to Sec. Purisima,” Lacierda said in a text message to The Standard.
On Sept. 14, the President said he was not amenable to lowering income tax rates, saying he was unconvinced that this would benefit the majority of Filipinos.
“The question is, will the lowering of income tax level be beneficial to our countrymen? I am not convinced as of the moment,” said Aquino during an interview in Iloilo City.
Malacañang earlier said the Department of Finance is pushing for a comprehensive review of the existing tax system.
“The government is open to consider proposals on changing the income tax rates and continues to work with Congress on this matter,” Communications Secretary Herminio Coloma Jr. said.
“It is also important to identify new and additional sources of tax revenues that will offset any reduction in collection of income taxes,” Coloma added.
Opposition lawmakers on Sunday rejected a Palace proposal to increase VAT from 12 percent to 14 percent, saying this would defeat the purpose of providing relief to ordinary workers by lowering their income taxes.
In the House, the leader of the independent minority bloc, Leyte Rep. Martin Romualdez, urged his collagues to pass a law to lower personal and corporate income tax rates.
The call came as the chairman of the House committee on ways and means, Rep. Miro Quimbo, prepared to meet with President Aquino on Thursday to convince him to support the measure that he earlier rejected.
Romualdez said the Congress needed to pass the law to help the country’s millions of workers.
“Let’s just work for its passage and give the final decision to the President. Should he veto this, he will be accountable to the Filipino people. Right now, I believe we should show malasakit (compassion) to workers,” Romualdez said.
He added that the bill’s passage would help the poor and workers improve their lives.
Quimbo said he would make presentation before President Aquino Thursday to win him over.
“I’ll be presenting data to support the passage of the bill. I am hoping that I can convince the President,” he said.
