Lowering income taxes for the majority of families can be the start of more wide-ranging income tax reforms

Given the burden of rising prices and a regressive tax system, the lowering or even removal of taxes on low and middle income families is long overdue, research group IBON said. Revenue losses can be compensated by more determined collection of taxes on rich families and large corporations.

Progressive lawmakers recently proposed the lowering of income taxes to give relief to individual taxpayers who earn above-minimum but still short of the living wage. The proposal has been echoed by both the House of Representatives and the Senate. But President Aquino has so far declined the proposal in anticipation of its “unintended consequences” amid a budget deficit.

IBON approximates around 5-6 million Filipinos and their families being doubly burdened by higher taxes and by having incomes eroded by inflation. The prices of goods and services increased by at least 110% between 1997 and 2012, according to Bangko Sentral ng Pilipinas (BSP) data.

Individual income tax brackets have remained unchanged since 1997 and been overtaken by rising incomes. The nominal income of the lowest-earning 70% of Filipinos increased by 137% between 1992 and 2012, according to the latest Family Income and Expenditure Survey (FIES). This unduly brought many low and middle income families into higher income tax brackets, even up to the highest bracket charging 32 percent, according to IBON

The group said that the Aquino government’s refusal to lower income taxes due to its chronic budget deficit defers to elite economic interests. Any revenue losses can be immediately compensated by more aggressive collection of corporate income taxes and, for instance, more effective collection of estate taxes on wealthy families.

IBON estimates up to Php780 billion in potential tax revenues from firms especially from large corporations in 2012 yet only Php371 billion was actually collected by the Bureau of Internal Revenue (BIR) in that year. Additionally, the country’s wealthiest families pay only a few hundred million pesos in estate taxes every year which has allowed them to accumulate trillions of pesos in wealth over the decades. For instance, just the richest 50 Filipinos accumulated Php3.3 trillion in wealth by 2014.

Lowering income taxes for the majority of families can be the start of more wide-ranging income tax reforms, stressed the group. Personal income taxes on the richest will eventually need to increase. The system of corporate income taxes also needs to be revised with micro, small and medium enterprises given support through lower income taxes compared to large corporations.

Income tax reform measures are urgent to relieve the burden on low and middle income families, raise revenues for social services and economic development, and spur economic growth, the group said.