The most difficult job to have right now is to be a member of the political elite while holding a position as a government official. The problem is that governments are broke.
The only reason that these nations have not all failed is because they can still stay alive by borrowing more money. But the well of borrowed funds is not deep enough. Governments are desperate for more revenue and, when they find new sources, they still need more. It is only when finding new ways to tax the people does government become creative.
Obesity is becoming a global problem, so the solution is to tax soft drinks containing sugar. But then again, if you want to buy fitness equipment to stay in shape, you also pay a tax.
Here in the Philippines, the government takes about 30 percent of the income we earn and then takes about 12 percent of the purchase price of everything that we buy. However, our government only takes about 15 percent of the GDP in taxes. For Australia, it is 25 percent, as also for South Korea. Indonesia collects less at 12 percent.
Fortunately, the Philippine government has, for the past 10 years, put its financial affairs in order, and is not desperate for increasing revenues. In this environment, genuine tax reform is possible, practical and even probable.
The Department of Finance (DOF) has prepared a scheme that could bring drastic positive change for the people and the country.
The income-tax rate for both individuals and corporations would be cut to 25 percent. To help make up for the revenue shortfall, the tax on oil products would be raised substantially. The value-added tax (VAT) would again be expanded to cover more items and raised to 14 percent. However, the key to the proposal is for the first P1 million of earned income would be income tax-free.
Based on the DOF estimates, 11 million Filipinos would not be paying any income tax at all.
There are advantages and disadvantages to shifting to more taxation on spending from taxing income. But let’s take a positive approach for a moment. A P10-per-liter tax on gasoline would force the government and the people to find realistic mass-transit solutions and much greater energy efficiency.
In theory and somewhat in practice, a tax on sales inhibits spending, while an income tax inhibits earning more. Wage earners might do more to earn more, knowing that they will not move into paying higher taxes as is the current situation. A higher VAT might discourage some short-term luxury purchases, because saving for purchases, like cars and homes, would be easier and faster.
We like the basic proposal of the DOF. The key is that the Philippines can afford tax reform that will leave more money in the hands of the people while not curtailing government programs.
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And where does this leave the critical issue of the need to reform our payroll withholding tax – financed GOCCs – GFIs like GSIS, SSS, PHIC / Philhealth, HDMF / Pag – IBIG and OWWA Fund then?
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