tAx nA iYan Oh!!!!

Nakatanggap ako ang isang E-mail mula sa isang "Concerned Citizen" siya si Marcelo L. Tecson... google ko agad sino siya... isang manunulat... wala na akong alam tunggkol sa kanya maliban duon... (kung may nakakakilala sa kanya share nyo naman sa akin... tinatamad na akong i-google kung sino siya eh)

Hindi ko rin alam kung may basehan ng kanyang mga mungkahi tungkol sa usaping Tax dito sa ating bansa... ngunit may magaganda siyang sinabi tungkol sa MAHIRAP at MAYAMAN...

Ibahagi ko lang sa inyo... medyo mahaba pero kung nais ninyong matutoo magandang basahin ito... wala akong sinabi na paniwalaan ninyo kanyang mga sinasabi... pero matatalino naman siguro kayo upang pulutin ang makabubuti para sa inyo... at maaaring makabubuti rin para sa Bayan... natuwa lang ako...



Subject: THE REAL ISSUE AGAINST E-VAT THAT HITS RICH AND POOR ALIKE: THERE IS AN "OVERLOOKED" COMMON-SENSE AND LESS PAINFUL ALTERNATIVE THAT ZEROES IN ONLY ON THE RICH--PROGRESSIVE TAXATION BASED ON ABILITY TO PAY

There is a discernible perception, rightly or wrongly, that increased revenue generation from expanded value added tax (E-VAT) has helped stabilize the economy and instill confidence in it by the international financial community. However, the point missed is, while increased revenue generation is admittedly needed, anti-poor INDIRECT tax E-VAT that hits rich and poor alike is not the only way of doing it. There is a common-sense, less painful, direct, and more precise mode of attaining the same objective: through a pro-poor DIRECT tax that zeroes in only on the surplus income of the rich--PROGRESSIVE INCOME TAXATION based on ability to pay. This point is explained at length in the herein appeal for progressive taxation.

With all due respect, you as our responsible highest executive and legislative officials have to confront the real issue against E-VAT, under which you may have to choose either one of the following options:

FIRST, to ignore the clamor for E-VAT reduction and instead continue subjecting to 12% expanded VAT even the most essential needs of the poorest of the poor (such as medicines of the sick and the dying among them)--at the same time freeing from further income taxation the SURPLUS income of even the super rich, through perpetuating and not disturbing the present 34% top marginal income tax rate for INDIVIDUALS, or

SECOND, to raise to say 40% or more the said 34% top marginal individual income tax rate originally designed for the rich--and then freeing from expanded VAT (by way of reduction in E-VAT rate and coverage) the great majority of Filipinos who do not have enough income even for their most basic needs like food, medicines, shelter, and education.

This paper humbly recommends the second option for reasons hereunder presented. We pray that may God guide you in your decision and action.

May I respectfully solicit your feedback on the issues raised and recommendations made in this email.

Thank you.


MARCELO L. TECSON
A Concerned Filipino Citizen

Atlanta, Georgia
July 31, 2008

==============================================

APPEAL FOR
PROGRESSIVE TAXATION POLICY--
TOWARDS POVERTY ALLEVIATION AND BRIDGING
THE GAP BETWEEN THE POOR AND THE RICH

STATEMENT OF THE PROBLEM:
THE POOR ARE OVERTAXED ON INSUFFICIENT EARNINGS,
WHILE THE RICH ARE UNDERTAXED ON SURPLUS INCOME

Providing for those who cannot provide for themselves is the rationale behind advanced nations’ welfare program for their POOR citizens. In our case, instead of doing that, the government has been subjecting the POOR to UNAFFORDABLE taxation on their still INSUFFICIENT earnings. In contrast, it has been sparing the RICH from AFFORDABLE further taxation on their SURPLUS income. This is the situation under the existing national taxation system that has become REGRESSIVE owing to undue reliance on expanded and raised value added tax (E-VAT)--an indirect tax that hits the rich and poor alike--rather than on INCOME TAX, a direct tax that can zero in on the surplus or disposable income of the rich and subject it to higher taxation without harming their present lifestyle. There are those who can pay some more taxes yet not incrementally taxed, as unwittingly suggested by Mr. Mark Jimenez who contributed P50 million to distressed educational plan holders,
and Mr. John Gokongwei, Jr., who donated to a foundation the equivalent of a whopping $200 million, as reported by local media.

If the POOR are subjected to E-VAT or indirect taxation up to SATURATION point while the RICH are not, this situation should be considered in income taxation, where the POOR should be extended more liberal treatment. Not to do so will perpetuate the DISCRIMINATION against the POOR--arising from the failure to put into greater practice the truism that the ability to pay taxes is relative, that the present 12% E-VAT hardly made a dent on the AFFLUENT's financial capability, so that they can easily absorb some more income tax; but the same 12% E-VAT has already impaired the POOR's capacity to pay, such that they should be spared from any income tax increase.

***

A. WHY TAX SOME MORE THE RICH BUT NOT THE POOR: THE RICH HAVE MORE THAN ENOUGH SURPLUS INCOME FOR LUXURIES EVEN AFTER SUBJECTED TO ALL TAXES, WHILE THE POOR HAVE LESS THAN ENOUGH MINIMUM EARNINGS FOR NECESSITIES EVEN BEFORE SUBJECTED TO ANY KIND OF TAX;

STATED DIFFERENTLY, THE RICH WILL REMAIN RICH EVEN IF SUBJECTED TO INCREASED TAXATION, WHILE THE POOR WILL REMAIN POOR EVEN WITHOUT FURTHER TAXATION

Two fundamental philosophies evolved as STANDARDS OF FAIRNESS in taxation. First, the BENEFIT principle, which validly demands that those who benefit from something (in this case, government service and protection) should pay for it. Second, the ABILITY-TO-PAY principle, which provides for a PROGRESSIVE TAXATION system where those who can pay more are required to pay more.

If the POOR are already suffering and TAXED ENOUGH, yet the TAXES generated are still INSUFFICIENT to mitigate the government’s huge budget deficit, the solution is not to tax some more both the rich and the poor--as in the case of E-VAT--but to tax some more only the AFFLUENT taxpayers who can afford a more pronounced progressive taxation.

Some JUSTIFICATIONS for PROGRESSIVE TAXATION are as follows:

(1) SUBJECTING THE POOR TO INCREASED TAXATION WILL WORSEN, NOT ALLEVIATE, POVERTY--THIS IS OBVIOUS.

Subjecting further the POOR to higher taxation will leave many of them with funds INSUFFICIENT to meet even their BASIC NECESSITIES, like food, clothing, shelter, utilities, medical and educational expenses, etc. Under the situation, taxing them further will give rise to mass DISCONTENT and greater SUFFERING.

The remaining taxpayers still with capacity to pay--the RICH--have to pay more because they can still do so without sacrificing much their luxurious lifestyle, or without undergoing SUFFERING similar to that of the POOR. As previously stated, the still UNTAPPED ABILITY of the RICH to pay some more taxes was eloquently demonstrated by Mr. Mark Jimenez, who donated P50 MILLION to distressed educational plan holders, and dramatized much more by Mr. John Gokongwei, Jr., who donated to a foundation the equivalent of a whopping $200 MILLION!

Clearly, the RICH can still afford to pay some more taxes if mandated to do so--without depriving them of their palatial homes, fabulous jewels, flashy cars, expensive foreign holidays, and other blessings not enjoyed by the great masses of Filipinos. In which case, what is wrong in mandating them to do so, when, in spite of the mandate, they can still enjoy their comfortable lifestyle?

(2) THE RICH WHO CAN PAY MORE SHOULD PAY MORE BECAUSE THEY HAVE GREATER STAKE IN A PEACEFUL AND PROSPEROUS SOCIETY.

The RICH who can pay more for the attainment of a prosperous and peaceful society should pay more--because they have more BENEFIT to GAIN and enjoy from such ideal society, and more WEALTH and happiness to LOSE in a society that, for lack of adequate funding for the government that administers and protects it, is beset by mass poverty and crimes against persons and property, like kidnapping of the RICH and robbery. Under a helpless government hampered by lack of enough revenues, the RICH will be at constant RISK of loss of LIFE or MONEY or both.

(3) SUBJECTING THE RICH TO INCREASED TAXATION IS DOABLE--AND IT SHOULD BE DONE AS A MATTER OF NECESSITY.

We have to compel the AFFLUENT to pay higher taxes as a matter of necessity. In war, patriotism alone will not produce enough volunteers to fight for the country, which is why compulsory drafting of able-bodied citizens is done. In economics, patriotism alone of those with ability to pay will not generate enough taxes that can be spent for economic growth, that is why those who can afford to pay more, the AFFLUENT, should be constrained to pay more. In the face of the government’s still existing budget deficit, this should be done as a matter of absolute necessity, if only to correct the DISCRIMINATION in the present E-VAT system.

In enacting the expansion of coverage and increase in VAT to 12%, the government has already taken an EXTREME MEASURE against the POOR, especially the unemployed consumers. Along with the rich, they are similarly subjected to the increased VAT rate on their purchases of some basic necessities.

In comparison, the government has shown no intention whatsoever of taking a parallel EXTREME MEASURE against the RICH. They have been gifted successive reductions in their top personal income tax rate--from the original 70% of taxable business income in excess of P500,000 down to 60% as of 1985 (per amended Section 21 of the Tax Code), drastically cut down further to 35% under EO No. 37 signed on July 31, 1986, brought down some more since year 2000 to 32% under the Tax Reform Act of 1997, then partly restored to 34% to help address the government’s budget deficit. Yet, even if VAT was raised to 12% that subjected the generally poor Filipinos to burdensome consumption taxation--at tremendous sacrifice of the poorest of the POOR but not of the RICH--the latter are not similarly subjected to a more rigid progressive taxation by way of PARTIAL RESTORATION of their old 70% top income tax rate to level much higher than the present 34%.

As stated, the reality that the RICH can absorb some more taxes at this time of great need is dramatized by the P50 million and $200 million donations by Messrs. Mark Jimenez and John Gokongwei, Jr.. How could the government tax to the hilt the poorest of the poor without similarly taxing some more the RICH typified by these two caring and affluent gentlemen?

(4) THE GOVERNMENT HAS TO SHIFT EMPHASIS FROM REGRESSIVE CONSUMPTION TAXATION UNDER E-VAT TO PROGRESSIVE TAXATION BASED ON ABILITY TO PAY--THIS IS BASIC.

The present burdensome taxation under E-VAT is a form of regressive taxation that has to be corrected. With the enactment of E-VAT, as espoused by some UP economists and as recommended by IMF, in effect the government has recognized the beauty of CONSUMPTION TAXATION—-that it will hit the rich more because they consume more, and that it will spare the income of the affluent, the creator of wealth, from increased income taxation that diminishes earnings plowable back into business.

What is this, the ability-to-consume taxation doctrine that supersedes the revered ability-to-pay taxation principle? Of course, consumption taxation will generate badly needed taxes, but the noble end does not justify the harmful means. Consumption taxation has to be resorted to only as a last recourse, or after fully exhausting income taxation. As surfed from the Internet, there are foreign experts who espouse VAT and consumption taxation. This is understandable in ADVANCED NATIONS where the POOR are relatively not predominant. On top of that, they are SUBSIDIZED by the government through welfare programs. These are not the conditions in the Philippines, so we should not blindly follow what advanced nations are doing.

Intensified consumption taxation is fine if it zeroes in only on the rich, but it also captures the poor and puts many essential goods that will improve their standard of living beyond their reach. Therefore it is ANTI-POOR and is not right. Moreover, there is a pro-poor alternative--adherence to conventional and equitable taxation principle: ABILITY TO PAY that promotes desirable progressive taxation, not undesirable regressive one under consumption taxation.

Before thinking of conserving the investible earnings of moneyed capitalists, we should worry first about the murderous effect on the unemployed and the working class of increased consumption tax, at a time of spiraling prices owing to the fantastic rise in the price of crude oil. The rich will be taxed more on a per capita basis, granted, but they can consume only so much, and they are just a small part of the population. In terms of absolute amount, because the rich constitute only a small sector, the predominant poor will carry the brunt of consumption taxation.

On the advocated raising of consumption tax in lieu of income tax because creators of wealth should not be subjected to increased income taxation, this does not apply squarely to targeted rich individuals. Bulk of their profits are lodged in corporations object of their investments, and increase in corporate income tax rate is not herein recommended.

(5) THE RICH PROSPERED OUT OF PUBLIC PATRONAGE, SO WHY NOT ASK THEM TO CARE FOR THE SOURCE OF THEIR WEALTH?

The AFFLUENT (like owners of super malls and telecom companies) and their businesses thrive and benefit from PUBLIC PATRONAGE, therefore they have a debt of gratitude to the people. WITHOUT THE POOR, THERE CAN BE NO RICH. Hence, at this time of great need for revenues by the government that serves the people, the affluent can repay the people by shouldering higher taxes that will finance public expenditures intended for the benefit of all.

(6) MORE THAN PAYING LIP SERVICE TO POVERTY ALLEVIATION, THE GOVERNMENT SHOULD TAKE THE READILY AVAILABLE BITTER PILL FOR BRIDGING THE GAP BETWEEN THE POOR AND THE RICH.

Many of us are complaining--with merit--that the RICH among us are getting RICHER while the POOR POORER, that there is unequal distribution of wealth, that the growth of the economy does not trickle down to the poor, and so on. Here then is the heretofore overlooked or ignored convenient EQUALIZER, the means of correcting--minimally or substantially depending on how high the top tax rate will go--the oft lamented situation by having the RICH SHARE THEIR WEALTH TO THE POOR through HIGHER TAXES, which can be used to provide basic services for the UPLIFTMENT OF THE POOR--like free education and enough classrooms, health services, technical assistance to entrepreneurs and farmers, farm-to-market roads, bridges, and so on.

***

B. THE PROPOSED BASIC TAXATION POLICY: PROGRESSIVE INCOME TAXATION THAT TAXES MORE THE SURPLUS INCOME OF THE RICH AND TAXES NOT THE MEAGER EARNINGS OF THE POOR

On the foregoing premise that the rich should pay more taxes, PROGRESSIVE INCOME TAXATION should be fine tuned and pursued. It should be oriented towards LEAVING TO TAXPAYERS, after subjecting them to income taxation, the AMOUNT OF INCOME NEEDED for at least their BASIC NECESSITIES. This can be done by exempting from income tax--depending on need--part or all of each taxpayer’s earnings through the PERSONAL EXEMPTION mechanism, coupled with taxing more through GRADUATED INCOME TAX RATES the affluent on their SURPLUS or DISPOSABLE INCOME (after deducting provisions for taxes and personal expenses). The number of dependents, which represents the number of spenders for which INCOME AFTER TAXATION has to be earmarked, should be considered.

In effect, by shouldering higher taxes, the RICH are merely paying an EXTRA FEE or PREMIUM for their continued GREATER benefit, enjoyment of wealth, and public patronage in civilized society, under the administration and protection of the government.

THANKFULLY, the herein advocated progressive income taxation--which taxes more the surplus income of the rich and taxes not the meager earnings of the poor--has been partly addressed through the recent raising of deductible PERSONAL EXEMPTIONS and ADDITIONAL EXEMPTIONS for income tax purposes of INDIVIDUALS, which in effect exempted from income taxation the low-salaried or low-earning Filipinos. What needs to be done then is the remaining aspect of subjecting the RICH to increased INCOME taxation that will compensate for the suggested reduction in E-VAT.

***

C. RECOMMENDATIONS IN PRINCIPLE

(1) MINIMIZE CONSUMPTION TAXATION BY EASING E-VAT

VAT need not be totally eliminated because it is merely the replacement of the old business or percentage sales tax that had contributed significantly to the government's much needed revenue generation, similar to what is similarly being done in other countries. However, VAT should be set at a level equitable and affordable to the POOR. At the very least, the 12% E-VAT should be permanently reverted to the old 10% VAT, medicines should be permanently exempted from its coverage, while other critical products may be exempted from it on a temporary basis during crisis periods.

The argument that exempting medicines will give rise to demands for exemption for other products deserves little merit. The need for medicines is unique--a matter of life and death--and forced ranking of goods and services deserving of exemption will put medicines on top of the list. For, compared to the more expensive and generally unaffordable medical and hospital services, it is the least costly and last resort cure--yet still unaffordable at present heavily taxed costs--to the most hopeless cases, the gravely ill and the dying among the poorest of the poor.

How can we subject the sick and the dying among the poorest of the poor to unaffordable VAT on medicines--in the process depriving them of their last life-saving cure--in lieu of taxing some more the surplus income of the rich? Is this not unwitting EXTREME CRUELTY if not MURDER or MASSACRE of the poor on a grand scale? For instance, when I asked one of our workers if he still has a father, his casual reply was none, his father got sick and they could not afford to buy his medicines, so he died.

What's more, in other countries the poor and unemployed even if healthy receive welfare checks or other forms of assistance from their governments. In our case, in lieu of our government helping them, why do we have to make more costly through E-VAT the last-resort cure of the sick and the dying among the poorest of the poor--is this not tragic and absurd? Where is our godliness and compassion for them?

Of course, profiteering on patented medicines has similarly contributed to the high cost of medication, but why aggravate the situation of the poor through E-VAT? Even if prices of medicines go down with the recent enactment of the cheap medicines law, the government should not tax the life-saving cure of poor Filipinos. Instead, it should help bring down the prices of medicines to the lowest levels possible through exempting these from VAT.

(2) EXEMPT FROM TAXATION THE INCOME OF THE POOR THAT ARE NOT EVEN ENOUGH FOR BASIC NEEDS LIKE FOOD, SHELTER, EDUCATION, AND MEDICAL CARE.

Any tax reform should LIGHTEN the already heavy tax burden of the low-income group, NOT WORSEN it as in the case of E-VAT. Fortunately, as stated, this has been partly addressed by the recent increase in deductible PERSONAL and ADDITIONAL EXEMPTIONS of individuals for income tax purposes.

(3) ADJUST UPWARDS THE PRESENT 34% TOP PERSONAL INCOME TAX RATE, TO COMPENSATE FOR THE RECOMMENDED EASING OF E-VAT.

Our executive and legislative officials have to make the hard decision of TAXING SOME MORE the RICH--including themselves if applicable--in order to generate funding for vital government projects and services that can uplift the living conditions of the POOR--who patronize the products of the RICH. This will also allow the government to ease the E-VAT burden of the poor. Uplifting the economic conditions of the poor will in turn create a stronger consumer base that will patronize the businesses of the RICH.
Inasmuch as the present 12% E-VAT has already subjected to EXTREME TAXATION the POOR but not the RICH who are not severely harmed by the increased VAT, for consistency in treatment and elimination of the present DISCRIMINATION against the POOR, the RICH should likewise be subjected to EXTREME TAXATION through increase--or partial restoration to higher level--of the existing 34% top personal income tax rate, under a more progressive taxation system that continues to use the graduated-tax-rate mechanism.

The 34% TOP PERSONAL INCOME TAX RATE ought to be ADJUSTED UPWARDS, say for taxable income at a new top bracket higher than the present threshold of P500,000. (At the very least, such upward adjustment in top income tax rate is imperative for as long as the 12% E-VAT remains--in order to institute an equitable, non-discriminatory, and balanced SATURATED TAXATION of both the incapable POOR and the capable RICH, not just of the POOR as is currently the case.) Offhand, a new top bracket of say more than TWO MILLION PESOS maybe created and assigned the top personal income tax rate of 40 percent or higher. (This recommendation is tied up to the next recommendation on making the income tax burden of middle-income earners realistic, aimed at creating a strong middle class that can serve as bedrock of the nation's economy.)

(4) FOR THE SAKE OF MIDDLE-INCOME EARNERS, FINE TUNE THE PRESENT TAX BRACKETS AND CORRESPONDING GRADUATED PERSONAL INCOME TAX RATES

The government has demonstrated its appreciation of the need to update over the years the basis of taxation, such as the threshold for businesses subject to VAT. When VAT was first introduced in 1990, the threshold for businesses subject to VAT was P550,000 per year, meaning, those with annual sales of P550,000 and higher were covered by VAT whether they liked it or not. Today, the threshold is P1,500,000 or thereabout.

On the other hand, the top income bracket of P500,000 has been in effect for as long as I can remember, and that was even before martial law was declared in September 1972. Today, the same top income bracket remains, taxable at 34%. This means that this income amount applies no longer to the real RICH but to middle-income Filipinos, whose essential expenses have grown as much--and therefore they should be subjected to REDUCED income tax rate so that they will have enough income left for vital expenses, like those for the good education of their children. Again, offhand, the upper limit or ceiling of the income bracket subject to the present 30% tax rate may be raised to ONE MILLION PESOS, a new bracket of more than ONE MILLION PESOS up to TWO MILLION PESOS may be created and subjected to 35% tax rate, and the aforesaid top bracket of more than TWO MILLION PESOS can be taxed at the top rate of 40% or higher. (Based on the profile of taxpayers, the
Department of Finance can provide a more refined fine tuning of individual income brackets and corresponding graduated income tax rates.)

(5) MAINTAIN PRESENT CORPORATE INCOME TAX RATE

As the earnings of corporations are generally plowed back into business until the desired growth or expansion--which is elastic--is attained, the present corporate income tax rate need not be disturbed.

However, as an exception, at least during critical times, SURTAX may be imposed on unusually high profits (expressed as return on equity) of corporations that deal in exploitation of our natural resources or operate as monopoly/oligopoly involving essential products and services that cater to the needs of the masses.

(6) INTENSIFY COLLECTION OF EXISTING TAXES AND CURB SMUGGLING

Intensification of collection of existing taxes, including the curbing of smuggling, is a usual valid recommendation. Along this line, the Bureau of Internal Revenue has instituted significant reforms in its collection system--like tax mapping and crosschecking of tax returns vs. taxpayer reports--it is partly a matter of sustained implementation, coupled with adequate control measures against corruption.

In the case of the Bureau of Customs, if it will be asked to display in the Internet the process flow of its taxation system, competent internal control and systems specialists from the private sector can provide--I suppose without cost to the government--recommendations that can plug loopholes or vulnerabilities to corruption in the taxation system. For example, as a way of curbing smuggling, how do the Department of Finance and the Commission on Audit capture and preserve the data on 100% cases of dutiable incoming foreign cargoes by air and
sea? Do they require the airline and shipping companies to submit independent lists of commercial cargoes that they transported--so that the covering shipping documents of a particular cargo cannot be simply destroyed once the cargo is unloaded and secretly taken out without the payment of customs duties, thereby leaving no trace whatsoever of the particular dutiable but not duty-paid transaction?
For the consideration of all concerned.

5-6-07, 5-24-07, 7-31-08

Cc: Selected executive and legislative government officials,members of think-tank organizations and academe,concerned citizens, etc.