The Tax Reform for Acceleration and Inclusion Bill Act, or House Bill 4774, is probably the closest we can expect to come to sensible tax collection, as there are provisions that will make everyone unhappy.
The problem for legislators writing tax laws is that most people’s idea of perfect “tax reform” is “less taxes for me; more taxes for them”. We cannot have it both ways.
The ultimate question in taxation policy is how much taxes should be levied on income, and how much should be placed on spending. While you are trying to figure out the answer, how should taxes be apportioned through the economic classes? And the politicians have to do all this while thinking about the next election.
The best place to start is with the income-tax provisions, which should make everyone happier. Those earning not over P250,000 annually will be exempted from paying tax. This is long overdue, as P20,000 a month is barely sustainable in 2017. The next tax bracket—over P250,000 but not over P400,000—would pay a fixed tax of 20 percent of income in excess of P250,000.
This would provide significant after-tax cash in the pockets of the middle class, and that is what the economy needs for sustainable growth. We talk about how the middle class is the foundation of economic growth, yet that is the group most burdened by taxes. These families are the ones who are trying to get ahead for a better future. They are also the ones who are most inclined to invest for that future.
The other problem with income tax is that earnings tend to rise over time due to inflation, which constantly pushes people into higher tax brackets even as purchasing power is reduced. As of 2020 onward, income over P250,000 but not over P400,000 would pay a fixed tax of 15 percent of the income above P250,000.
On the spending side, taxes will be increased. Unleaded premium gasoline will have excise taxes go from P4.35 to P7 per liter in 2017, P9 in 2018 and P10 in 2019. Diesel fuel will increase from P0.00 to P3 per liter in 2017, P5 in 2018 and P6 in 2019.
Everyone is going to complain about fuel prices going higher. But there is no free lunch. We cannot afford to have government finances go back to the mess they were in before the Arroyo administration tried to balance the books. Maybe higher fuel costs might finally get Filipinos to be more fuel-conservation conscious and encourage car-pooling and other schemes. Likewise, the excise tax on automobiles will increase. Maybe then we will push harder for reliable, safe and cost-effective public transportation.
If you are thinking of avoiding all income taxes by playing the lotto, you are out of luck. Under the bill, a final tax rate of 20 percent will be imposed on all lotto winnings. But then again if you do hit one of those P100-million wins, your heirs will be better off when you pass on. The estate tax will be reduced from the current maximum rate of 20 percent to 6 percent.
The Department of Finance computations show a net revenue gain of P162.5 billion in the first year of implementation. That will help pay for the desperately needed infrastructure programs. But along with tax reform, we had better also receive spending reform from the government.