AFTER President Benigno Aquino III rejected proposals to lower income tax rates, Senator Juan Edgardo Angara filed a new tax reform bill adjusting the levels of taxable income to inflation in a bid to ease taxpayers’ burden and to make the tax system more equitable and progressive.
Angara noted that Aquino and his economic managers are pushing for the passage of the Salary Standardization Law IV that would increase the salaries of 1.3-million government employees but the P50-billion cost is even more than the P30 billion that is expected to be lost with tax rate cuts.
But even if the government increases salaries, Angara noted that workers will make less money in real terms than in 1997 because of inflation and the higher tax bracket because there are no provisions for indexation or automatic adjustment.
He also stressed that the Aquino administration has more than enough fiscal space to implement both the SSL IV and the income tax reform due to underspending.
He guaranteed any revenue loss can be recovered, particularly through the VAT on goods, because of the additional spending of the people who have higher take-home pay.
“I am still pushing for tax reform despite the clock ticking and election season fast approaching. This is not merely an economic issue or a political move. Income tax reform is an issue of social justice, fairness and equity,” said Angara, chairperson of the Senate ways and means committee.
However, he conceded that the Senate alone cannot pass this bill because of the Constitution’s origination clause which provides that all revenue measures must originate from the House of Representatives.
“We must aim for a society where the hardworking are rewarded and given a chance to move up. We must enable our workers to comfortably provide for their families and their future,” he added
While their initial proposal was to lower the tax rates across-the-board and compress the tax brackets from seven to five, he said adjusting income taxes to take into account inflation is a more viable proposal for the remaining time of the present administration.
“This is the minimum position our government can take in reforming our outdated and unjust tax system,” he said.
Under the National Internal Revenue Code of 1997, individuals with taxable income of over P500,000 are taxed with a fixed amount of P125,000 plus the 32 percent of the excess over P500,000.
Taxable income refers to an individual’s gross income less the deductions and/or personal and additional exemptions.
At present, he noted that the Philippines has the second highest individual income tax rate at 32 percent in the ASEAN region, next to Thailand and Vietnam’s 35 percent.
In the explanatory note of his income tax reform bill, Angara emphasized that the Constitution mandates that the “rule of taxation shall be uniform and equitable” and “Congress shall evolve a progressive system of taxation.”
He said P500,000 in 1997 does not have the same value today due to inflation and P1 in 1997 when adjusted for inflation is now worth only 44 centavos.
“Middle-income earners, who were mostly taxed at 25 percent in 1997, are now pushed into the top tax bracket at 32 percent together with the billionaires of our country because of our outdated tax system. Is this equitable and progressive? Clearly, it is not,” the senator said.