The government’s plan to raise the income tax of the ultra-rich, or those earning P5 million or more annually, to ease the tax burden on those earning less initially looks fair. But whether it will increase the government’s revenues to partly finance the budget is doubtlful.
Finance Secretary Carlos Dominguez is preparing a tax reform package for Congress to essentially reduce the tax burden of the low- and middle-income classes from 32 percent to as low as 25 percent for those earning less than P3 million a year. The same proposal plans to raise the income tax of those earning P5 million or more to 35 percent from the current 32 percent.
The government is correct in adopting a progressive taxation scheme to make the system more equitable and fair to low wage earners. Its implementation, however, may not produce the desired results. The ultra-rich can always turn to their creative accountants and “massage” their annual income figure to stay within the lower brackets. Their income tax may even drop or approximate those of the average wage earners.
Relying on income tax as one of the major sources of revenue may not produce the increments that the government wants to collect. It has to broaden the tax base in support of economic goals and this requires increased job generation, which in turn will depend on higher investments.
New taxpayers will expand the collection base of the Bureau of Internal Revenue if the government succeeds in creating the right business environment that will produce additional jobs in various economic sectors, like agriculture, industry, manufacturing, housing, tourism, the business process outsourcing industry and transportation.
Accelerating transportation and other major infrastructure projects will result in greater economic activities and open a new market, especially for those in the countryside.
Increased farmers’ income, for one, will easily expand the tax base for the government that is inclined to borrow more in financing a bigger budget deficit. The government has an opportunity to increase its revenue base as long as its deficit-spending program results in investment-driven economic activities.