THE Philippine Senate and House of Representatives are apparently set to discuss changes in the tax code, specifically the income tax.
For businesses, income tax is an expense that increases with profitability, which means the more a business succeeds, the more it gives the government. For an individual, the income tax means that you work for the government for part of your workday whether you want to or not.
John Marshall, the fourth chief justice of the Supreme Court of the United States, said this about taxation: “The power to tax involves the power to destroy.”
The first taxes on income came from Chinese Emperor Wang Mang of the Xin dynasty, who taxed the profits of professionals and skilled labor. The Emperor and his profit tax were overthrown a few years later.
Through the centuries, taxes on the people were usually used either to keep the rulers in a comfortable lifestyle or to fight wars. It is a relatively new development that the people actually expect to get something back for what they pay in taxes.
There is certainly economic feasibility and practicality to pooling funds to pay for goods or services. Homeowners or condominium association dues are a tax and are usually based on the value of the unit. But the farther the
“taxes” go away to than be returned to the user, the more waste. It is like passing buckets hand to hand to put out a fire. By the time the bucket reaches the last person in line, some, if not much, of the water is gone.
Tax reform is the process of changing the way taxes are collected. But what is the goal of this proposed tax reform?
One representative says that his bill will leave more money in the hands of the lower-income workers. Another says the Philippines will be more competitive for foreign investments. But this is what the Department of Finance (DOF) says: “Lowering income-tax rates may attract more foreign investors into the country, but will be detrimental to our fiscal health if they are not offset by revenue-generating measures.” So tax reform is fine, as long as the government is still able to take the same amount from the economy. We just need to jumble things around a bit.
Further, the DOF said, tax reform must be “equitable so all Filipinos may continue to benefit from a robust fiscal position.”
Our current “equitable” system has a worker paying 32 percent on a P500,000 income. Maybe Thailand’s 10-percent rate on the same income would be more “equitable”. Thailand also has a national budget of P3.5 trillion versus our 2015 budget of P2.6 trillion, with almost the same government debt-to-gross domestic product ratio. Maybe someday tax reform will make taxes more equitable between the taxpayers and the tax takers.
Image credits: Jimbo Albano