THE influential Tax Management Association of the Philippines (TMAP) has proposed a tax structure limiting the levy on individual and corporate income to only 30 percent, even as the measure ensures that the corrosive impact of inflation is effectively taken into account.
The TMAP proposal seeks to cut the current 7-tier tax-extraction scheme to just five and lowers the current P500,000 tax base to only P300,000, such that, instead of paying a fixed tax of P125,000 for income of P500,000 and above, the same taxpayer does not pay a tax at all.
In other words, those earning P300,000 or lower need not worry that anyone from the Bureau of Internal Revenue would come and demand a tax payment as only those making more than P300,000 up to P2.5 million have to pay a fixed tax of P495,000.
Those making more than P2.5 million pay a tax equal to 30 percent, but in no case higher than 32 percent, the TMAP said.
The new tax proponents said the adjusted tax base addresses that curious tax phenomenon, known as the “bracket creep,” where inflation pushes the income of the hapless taxpayer into the higher brackets without taking into consideration any increase in the taxpayer’s real purchasing power.
The TMAP also said the reduced statutory tax rate from 32 percent to only 30 percent levels the tax extracted from both the individual and corporate taxpayer and makes the Filipino worker prospectively competitive, even as countries in the region begin the process of integration.
“To minimize revenue losses arising this proposal, a staggered reduction in the top statutory rate of 32 percent over a period of three years may be considered. This is to enable the government to immediately address the issue of high tax rates for the low-income and middle-income earners in the short-term, while ensuring that high-income earners get to fully benefit from it in the medium-term, when the government would have already achieved a balanced budget,” the TMAP said.
The tax-reform proposal also contains recommendations on redefining the tax-exempt de minimis benefits, the modification of the fringe benefits tax (FBT) system for compensation income earners, a simplified tax system for business and professional income earners, and increasing the capital gains tax rate to 10 percent for an initial P1 million and any amount in excess is imposed a rate of 15 percent, among others.
“This is the window that we can change the [tax] system. Don’t fear the revenue losses, because whatever revenue losses we’ll have, will be the gains of the people. We need to prioritize first the lowering of personal income tax. If they’re so afraid to know how much revenues will be lost, compute the ones from the employees first, because they have fixed income. If you’re afraid of revenue loss, start first from the employees because they need it more,” Raymond Abrea, president and chief strategy officer of Abrea Consulting Group, said.
The TMAP already submitted its proposed tax scheme to the Senate ways and means committee chairman and Sen. Juan Edgardo M. Angara last Thursday.