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PNoy asked to reconsider cutting income tax to higher purchasing power

Photo by George Calvelo

Nationalist People’s Coalition Congressman Win Gatchalian has asked President Benigno Aquino to reconsider his stance against lowering current income tax rates, assuring that the government will benefit from the increased economic activity through higher consumption-driven demand and increased collection of other taxes.


“The President should not forget that revenues foregone due to lower income taxes would be plowed back to the economy through increased spending on the part of consumers. Decreasing income tax rates will give people more purchasing power to buy goods and services. The increased demand will stimulate the economy further,” explained Gatchalian, senior vice chair of the House Committee on Metro Manila Development.


In reports last week, President Aquino shot down proposed measures to lower income tax rates for fear that it will affect the Philippines’ credit ratings. He also feared that it would lead to lower state revenues and worsen the existing tax collection deficit.



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Gatchalian, however, argued that revising income tax rates that are stuck in 1997 levels, as pointed out by the chairman of the House ways and means committee, will correct the unfair diminution of purchasing power and will give fair tax rates to professionals.


“Inflation pushes up nominal wages. This means that purchasing power does not always increase with increases in nominal wages. If, the nominal wage of a person increases but his or her real purchasing power stays the same, he or she could be pushed into a higher tax bracket and pay more taxes. The heavier tax burden effectively reduces his purchasing power,” explained Gatchalian.


The Valenzuela City lawmaker further argued that lowering income taxes would logically increase people’s disposable income and allow them to have more money to spend on goods and services.


“If the government will green-light the proposed decrease in income taxes, the loss in income taxes would be compensated by levying the extra economic activity through VAT, corporate taxes, and other channels. It will be a win-win situation for both income earners and the government,” said Gatchalian.


Gatchalian also urged the government to use taxes collected from people efficiently and to prioritize investments in human development from the foreseen increase in state income from taxes.



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“The people should feel it is worthwhile to pay taxes. The government should efficiently spend public funds on things most needed by people such as infrastructure and social services, instead of hefty salaries, allowances, and bonuses of top government officials. The government should be proactive in safeguarding the people’s money against graft and corruption,” Gatchalian pointed out.


The Tax Management Association of the Philippines (TMAP) had told Congress that the Philippine government imposes the highest applicable personal income tax rate among members of the Association of Southeast Asian Nations.


TMAP had reported that a Filipino employee with an income annual income of a little approximately over P500,000 is taxed 32 percent, while his Singaporean counterpart is only taxed two percent.


“The Philippines imposes higher income tax rates than Singapore. Yet, it is Singapore that ranks very high in the Human Development Index of the United Nations Development Programme (UNDP),” said Gatchalian.


“Singapore uses funds pooled from taxes efficiently and invests them wisely on human development, hence their very high ranking in the Human Development Index,” the lawmaker added.


Singapore ranked ninth among 187 countries in last year’s Human Development Index, the only Asian country to make it in the top ten.  The Index is a “summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living,” according to the UNDP. (Monica Cantilero)