Philippine basketball

Do VP bets support tax reform?

Aika Rey
Over-taxation is among the primary concerns of Filipinos, particularly the middle class

TALK TAX. All vice presidential hopefuls say they support lowering income tax rates.

MANILA, Philippines – Are the country’s vice presidential candidates for tax reform?

On May 9, Filipinos will choose among senators Alan Peter Cayetano, Francis “Chiz” Escudero,  Gregorio “Gringo” Honasan II, Ferdinand “Bongbong” Marcos Jr, and Antonio Trillanes IV; and Camarines Sur Representative Maria Leonor “Leni” Robredo for vice president.

All candidates say they support calls to reform the country’s decades-old income tax brackets. Most of them believe that government revenues will not shrink drastically due to tax cuts.

Tax cuts vs underspending

Escudero had said that lowering income taxes “broadens the tax base, increases the purchasing power of our people and it increases consumption, thereby spurring production and producing more jobs.”

He criticized the government for underspending and dismissed its position that tax cuts would reduce funding for government services, calling this a “myth.”

Marcos shared the same view. “What’s the rationale behind collecting too much tax when the government doesn’t know when and where to spend it?” the senator said in a student forum in San Fernando, La Union, in September 2015.

According to the Senate committee on finance, the government has underspent by about P623 billion since 2011, which is more than 20 times the pegged P30 billion-loss in annual revenue cited by the Department of Finance should tax cuts be implemented.

In a forum with journalists in June 2015, Budget Secretary Florencio Abad cited the  “institutional weaknesses” of government agencies, along with more rigid requirements prior to fund release, as the reason for the recurrent problem of government underspending.

Government underspending in 2011 pushed down economic growth to 3.7% that year, from 7.6% in 2010. It bounced back to 6.6% in 2012, as the government picked up spending, aided by the Disbursement Acceleration Program (DAP) implemented in the third quarter of 2011. The Supreme Court, however, ruled in 2014 that certain executive actions under the DAP are unconstitutional.

Other candidates also support tax reforms. United Nationalist Alliance candidate Honasan had said in a Philippine Daily Inquirer report that this is “doable”  as long as government’s priorities are very clear.

Cayetano expressed full support for the proposal, while Trillanes had said that while he is for income tax cuts, this may trigger the need to increase other taxes.

Robredo, the administration bet, backs tax reform despite the lukewarm support of the Aquino administration for the proposed income tax cuts. Malacañang had said that there is no debate on the need for tax reforms but proposals to lower tax rates need to be comprehensively reviewed to due to the potential consequence on government programs.

Why tax reform?

The 19-year-old personal and corporate income tax systems of the Philippines are the “most uninviting and out of date” in the Association of Southeast Asian Nations (ASEAN), several economists said. (READ: Why PH has 2nd highest income tax in ASEAN)

The Philippines has the second highest personal and highest corporate income tax systems among the ASEAN 6, or the major economies in the ASEAN, which also includes Indonesia, Malaysia, Singapore, Thailand, and Vietnam. The Philippines’ personal income tax is at 32%, and corporate tax at 30%. (READ: Lower income taxes? Aquino ‘not convinced’ it’s a good idea)

According to a 2015 IBON Foundation report, around 5 million to 6 million Filipinos and their families are being doubly burdened by higher taxes and inflation.

Prices of goods and services have more than doubled or increased by 110% between 1997 and 2012, but the individual income tax brackets have remained unchanged since 1997, according to the think-tank.

The report also cited the latest Family Income and Expenditure Survey (FIES) which showed that the income of the lowest-earning 70% of Filipinos had increased by 137% between 1992 and 2012. As a result, many low and middle income families now have to pay higher taxes.

Like presidential bet, like running mate?

Like the vice presidential candidates, all presidential bets have said that they support lower income tax rates. (READ: To cut or not to cut? presidential bets talk tax)

While supporting the idea, Liberal Party standard-bearer Manuel “Mar” Roxas II expressed some reservation over the proposal. (READ: Roxas on lower taxes: But what programs will suffer?)

Presidential bets on tax reform
Jejomar Binay Yes Tax exemptions for salaried employees P30,000 and below
Rodrigo Duterte Yes Tax exemptions for wage earners P20,000 and below
Grace Poe Yes Reclassification of tax brackets
Manuel Roxas II Yes Open to cut income tax rates but talks should not be made during election season
Miriam Defensor Santiago Yes Overhauling of tax system within 6 months of administration

Senators Grace Poe and Miriam Defensor Santiago, Vice President Jejomar Binay, and Davao City Mayor Rodrigo Duterte have their own tax reform proposals varying from bracket reclassification to exemption.

In September 2015, Malacañang rejected the proposal to reduce income tax rates, calling income taxes the “lifeblood of the economy.” President Benigno Aquino III had said that the government would consider income tax cuts if there is a corresponding measure to offset the loss.

In the same month, the country’s business groups also called for the Aquino administration to reform taxes to make the system fair and competitive with ASEAN neighbors. (READ: Prioritize public over credit ratings, Angara tells gov’t)

Over-taxation is among the primary concerns of Filipinos, particularly the middle class.

Despite everyone’s shout for reform, will taxes be lowered in the next 6 years? – Rappler.com

Aika Rey

Aika Rey is a business reporter for Rappler. She covered the Senate of the Philippines before fully diving into numbers and companies. Got tips? Find her on Twitter at @reyaika or shoot her an email at aika.rey@rappler.com.