TAX WISHLIST FOR 2016

Happy New Year, fellow Taxpayers!

At the start of 2016, it is good to reflect and draw up a list of our aspirations as Filipino taxpayers for this New Year. This list is something that we can all share with other taxpayers and demand from our Government, both from the current administration and the candidates for the upcoming 2016 elections. 

Here's how my wishlist goes!  

Wishlist #1: INFLATION-ADJUSTED TAX BRACKETS

This is basic and elementary. Simply a no-brainer. 

Everyone knows that, with inflation, the value of income you earned in 1997 will translate to even higher income value this 2016. For example -- your P500,000 salary in 1997 is now equivalent to about P1.1 million this 2016. In 19 years, you have become a millionaire but, in terms of "real" value, they are really just the same. 

Unfortunately, the personal income tax table has remained unchanged since 1997. The taxable income values in the tax table have not been adjusted to inflation.  Thus, as your income goes up with the simple passage of time, you naturally get pushed up to the higher tax bracket. No wonder your effective tax rate goes higher and higher each year!

And here's my simple wish -- that the Government, through Congress, muster the courage to correct this defect and act swiftly within the next few weeks to amend the Tax Code with the new tax table below:

There should also be a provision for the automatic indexation of the tax table against inflation to avoid the same problem in subsequent years. 

With this top wish on my list, the Government will be able to increase the take-home pay of many salaried workers, including Government workers who will receive salary increases starting this year under the 2015 salary standardization law. 

I continue to pray that the Government finally comes to its senses to see the truth and decide in favor taxpayers rather than technocrats, who keep on warning about budget deficits and yet underspending the budget anyway. 


Wishlist #2: LOWER TAX RATES

This is not just a populist proposal.  It is something that the next Congress should continue pushing for since it makes a lot of sense, especially being part of the ASEAN region. And this applies to both individual and corporate taxes.

Aside from making our country more competitive in terms of attracting foreign investments, lower tax rates will also encourage greater tax compliance among individual and corporate taxpayers. 

As it is, the Philippines effectively has the highest tax rates in the ASEAN region and quite a limited number of taxpayers in the current system -- most of them, unfortunately, are mere salaried workers, like you and me. 

With lower tax rates (but with a tighter system for monitoring and penalizing non-compliance), we hope to get into the "Tax Net" more and more taxpayers who ought to do their fair share in nation-building. 

When we have low tax rates, we have every right to put to shame those who still refuse to pay their correct taxes -- Ibinaba na nga ang tax rates, ayaw pa ring magbayad ng tax...That is really such a disgrace! 


Wishlist #3: SIMPLIFIED TAX SYSTEM

Complexity breeds non-compliance. 

I personally believe that there are many Filipinos out there who would want to do the right thing and pay their taxes. Unfortunately, the current system somehow prevents them from doing so.  

First, blame it on the complex Philippine Tax Code, which is largely based on the American Tax Code. It is high time that we do a comprehensive review of the Tax Code to simplify four (4) important areas:

1) Tax Types

We need to reduce and/or aggregate the many different type of taxes being imposed on taxpayers. We also need to check if certain taxes, like documentary stamps taxes, are still relevant today. This will give focus both for taxpayers and the BIR. Taxpayers will have fewer but, more significant taxes to comply with and pay for. Meanwhile, the BIR will be able to concentrate its efforts in collecting these taxes from taxpayers. 

2)  Exemptions and Deductions

We need to minimize and/or eliminate the various forms of exemptions and deductions.  Having too many of these generous provisions in the Tax Code makes the taxpayer prone to confusion and even evasion. Paring them down or taking them out altogether will also make the BIR's job easier.

3) Frequency of tax return filings

Most of the taxes imposed under the Tax Code are required to be filed and paid on a monthly basis.  This makes compliance burdensome and costly on the part of ordinary taxpayers. Administrative costs of the BIR are also higher because of this. Thus, we need to lessen the prescribed tax return filing deadlines during the taxable year.  

4) Various administrative requirements

Given that we are now in a digital age, there should be more flexibility in the administrative requirements prescribed under the Tax Code, such as invoicing/receipting, bookkeeping, submission of audited financial statements and various tax reports. 

These admin requirements should also not be specified under the Tax Code since we have to enact a new law just to update it.  Rather, the BIR, as the tax administrator, should be given the power to prescribe most of these requirements. 

However, just like any power, this power given to the BIR should be subject to certain limitations and regular review by Congress. This is an important point, especially since the current BIR administration has the tendency of making tax compliance even more difficult for taxpayers with its burdensome rules and regulations. 

With the intent of catching tax evaders, the BIR sadly ends up strangling those who are already complying within the system. Meanwhile, those who would like to "legitimize" themselves to become part of the tax system get to be overwhelmed by too many requirements that they turn around disheartened, seeing that it would not be worth their time and effort in the end. 


Wishlist #4: RESPECT FOR TAXPAYER RIGHTS

The Tax Code provides so much power to the Commissioner of Internal Revenue (BIR) but, there is there is nothing much on taxpayers' rights, except for taxpayer remedies in case of BIR examination and assessment. 

I strongly believe that we need a Magna Carta of Taxpayer Rights (and Responsibilities, as well, to balance it off!) to provide for certain basic rights which must be accorded to taxpayers by tax authorities. 

Examples of these taxpayer rights, as provided by the OECD Centre for Tax Policy and Administration, are as follows: 
- The right  to be informed, assisted and heard; 
- The right of appeal; 
- The right to pay no more than the correct amount of tax; 
- The right to certainty; 
- The right to privacy; and 
- The right to confidentiality and secrecy.

Educating the taxpayers on their rights and providing measures to uphold these rights will help prevent abuses by tax authorities in their use of administrative powers. 


Wishlist #5: FAIRER TAX SYSTEM

Last but definitely not the least, I am sure that we all dream of a fairer and more equitable tax system -- wherein those who have more in life really pay more and those who have less in life get to pay less. 

There have been studies that the more fair a taxpayer perceives the tax system to be, it is more likely that the taxpayer will comply.  

If we get to address the first four (4) wishlist items, then we will achieve more fairness in the current tax system. However, the system must also be re-designed to effectively tax, not only those who earn more (in terms of income), but also those who have more (in terms of wealth). 

It has been noted by the World Bank that there is growing inequality in the Philippines with the wealth of the 50 richest Filipinos being equivalent to 1/4 of the country's GDP! 

It is really about time that we make our tax system a tool for redistributing wealth in this country.  It is not just about getting more and more collections for the Government. But, getting those increase in collections more from the wealthier taxpayers in this country, rather than from salaried workers belonging to the lower and middle-class. 

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With my 2016 Tax Wishlist, I sincerely hope that we will commit to support and work towards Tax Reform this year and in the years to come. Government and Congress will have much work to do but, we must also do our share. 

How? By fulfilling our tax obligations as Filipino taxpayers, voicing out our concerns as Filipino citizens, and monitoring where our taxes go as our Government's bosses. 

Here's to a great year for #TaxReformNow ahead of us! 

BUWIS SERYE #2: SINGLE PARENT MARILEN

Marilen Reyes, 30 years old, is a single mother to her 10-year old daughter, Sheila.  She got married right after college to her high school sweetheart, Ben, but after 5 years of marriage, she discovered that Ben was having an affair with another woman.  Though she tried to work it out with him, Ben decided to leave her and her daughter.   At the start, he was sending some money regularly for Sheila’s schooling but, lately, his financial support has stopped.

It is a good thing that Marilen has been a working mother from the start of their marriage. She was able to save some money when they were still a double-income family but, ever since she became a single parent, finances became tight, especially during enrollment time. It is then a blessing for her to belong to a company which provides for interest-free education loan for dependents. However, she is quite anxious about the future when Sheila goes to college.  

Marilen currently works for one of the top Business Process Outsourcing (BPO) firms in the country as a business performance analyst.  She has a monthly salary of P50,000 and with this, she earns an annual income of P700,000, broken down as follows:

Annual salary       P600,000

Bonuses                 100,000

Total                     P700,000

She has heard about the tax reform issue from a young team mate of hers, Kiko.  He has a college buddy, JAL, who shared with him a template for computing the amount of over-collected taxes from his annual salary.  Kiko then shared the template with the rest of his team mates, including Marilen. 

Using the template from Kiko, this is what she came up with:

She noted that, under the current tax system, her Effective Tax Rate (ETR) is 26%.  This means that a little more than ¼ of her pay goes to taxes!  

Based also on the template, had the tax brackets been adjusted from their 1997 level, her ETR should just be 20% -- which means a huge tax savings of 6%, equivalent to P30,410 per year.  How she wished that the amount of over-collected taxes could have gone instead to a college fund for Sheila!

That is why when Kiko shared with their team the #BlackPaydayFriday protest last October 30, she did not hesitate to wear black that day in work and joined her team mates for a groufie while holding #TaxReformNow signs. By joining that protest, her one big hope is that she will be able to put aside more of her take-home pay for Sheila’s future, rather than simply overpaying for taxes to a Government which never really gave much support to single parents, like her.  

May magagawa kayang pagbabago sa tax system ang Gobyerno para sa mga single parent katulad ni Marilen?

Abangan!  

BUWIS SERYE #1: SINGLE YOUNG PROFESSIONAL JAL

Jose Anton Luna, or JAL to friends, is a 23-year old employee in a telco company.  After finishing a management course in college 2 years ago, he started working with the company as a Financial Analyst.  He is single and lives with his parents in Bulacan, where he commutes daily to and from work. 

He loves going out with friends from time to time but, is also a prudent in spending his hard-earned money.  He wants to save and invest some of it in mutual funds but, is finding it hard.  His net take-home pay is barely enough for his daily food and transportation costs. He also gives part of it to his mom to contribute to expenses at home.

His current fixed monthly basic salary is P17,500 and with this, he earns an annual income of P295,000, broken down as follows:

Annual salary     P210,000

Bonuses                 35,000

Overtime pay          50,000

Total                   P295,000

He has read about the proposed tax reforms in Congress and wondered to himself –

“How will the proposed updating of tax brackets to inflation impact his net take home pay?”

So, he decided to use his financial analytical skills to find out.  This is what he came up with:

He calculated his tax and noted that he is taxed at the 4^th bracket level with an effective tax rate (ETR) of 19%.  That is quite high for a young working professional like him! He knows that, in Singapore, the highest tax rate is just 17%.

Since the tax brackets are not adjusted to inflation, he worked back his pay to 1997 level and was shocked to find out that he should have been taxed only at the 3^rd bracket level with an ETR of 14%!  Applying the same level with adjusted bracket values to his current pay, he calculated that he is overtaxed by 5% or by P10,050 annually!

Wow! He could have already invested that amount in mutual funds!  Since he has been working for 2 years now, that would have been easily P20,100 in savings plus interest.  

With this, he realized the importance of the tax reform issue and decided to support the #TaxReformNow cause.  Last October 30, 2015, he joined the #BlackPaydayFriday protest by wearing black at work and posting a picture of himself in his Instagram account. He really would like to see Congress, coming back from its recess, to #PassTaxReformNow.  

Now he eagerly waits for Congress leaders to talk with the President on Monday, October 9, to finally convince him to change his mind in supporting tax reform, even just the proposed updating of tax brackets to inflation. He does not see any reason why such a measure should not be passed. It is but right to correct what is inherently wrong and unjust in the tax system for the past 19 years. What further study does the DOF need to fully understand that?

And if the Government fails to do something about it in this term, he knows as a duly-registered voter, who even took a day off his work for COMELEC biometrics,  that this will be an important election issue for him come 2016.

Papakinggan na kaya ng Gobyerno ang hinaing ng mga single young professionals gaya ni JAL? 

Abangan! 

WATCH OUT FOR "BUWIS SERYE!"

To realize the impact of unadjusted tax brackets for the last 19 years, Tax for Every Juan will run a "Buwis Serye" starting tomorrow, November 3, 2015, to highlight the amount of taxes "over-collected" from taxpayers through the years.  

The start of "Buwis Serye" will coincide with the opening of Congress, coming from its recess. 

For this series, REAL stories of salaried workers (although with fictitious names for confidentiality purposes) will be featured. The series will share their present work and family circumstances,  the amount taxes they pay under the current system, and the amount of taxes over-collected from them because of the Government's failure adjust the tax brackets with inflation. 

This series aims to show actual victims of "Bracket Creep" and, hopefully, this can help seek justice for them.  Our hope is for the Government come to see people for who they are and not merely as taxpayer statistics in the current tax collection system. 

With this, Tax for Every Juan joins the call for President Aquino and legislators to immediately act on pending tax reform proposals in Congress, particularly the indexation of tax brackets to inflation. 

This tax reform measure clearly does NOT require any further study. It simply requires our Government to give back to taxpayers what it has unduly collected from them by way of higher taxes through inflation for the past 19 years. 

Regardless of the estimated loss of revenues from this proposal, this measure should NOT also bear any cost on the part of Government. This is because taxpayers have borne for the longest time the burden of higher taxes and, consequently, lower take-home pay.

NOW is the time to give back to taxpayers what rightfully belongs to them. Ngayon ang #TamangPanahon para sa Tax Reform.

So, to the President and our Legislators -- Time to #PassTaxReformNow! 

P.S. - If you would like to have your story featured in the "Buwis Serye," 

please send a pm through our Facebook page 

https://www.facebook.com/taxforeveryjuan 

or post a message in this blog post. 

We'll get in touch with you for the details. Thank you.

ARE FILIPINOS REALLY UNJUSTLY OVERTAXED?

The call for #TaxReformNow has two-parts.  

First, it is all about FAIRNESS.  Filipino taxpayers are calling for the immediate indexation of the existing personal income tax brackets based on movements of the Consumer Price Index (CPI) from the time the 1997 Tax Code was enacted . This is to address the "bracket creep" phenomenon, which has practically raised tax collections for the Government simply through inflation, rather than better tax administration.  Add to this the fact that bulk of individual tax collections have always been borne by salaried workers, who are easy prey to this condition.  

Second, it is about COMPETITIVENESS.  Filipino taxpayers are calling for the lowering of tax rates both for personal and corporate income tax to ensure our country's continued growth and not lag behind our ASEAN neighbors. Lower tax rates, together with the simplification of the tax system, will greatly encourage tax compliance and broaden the narrow tax base. 

The second one we can definitely set aside for now for the next Administration to act on. This will require a comprehensive and holistic approach, as the DOF often puts it. However, we definitely cannt allow the present Administration of President Aquino to just turn a blind eye and stubbornly refuse to address the unfairness of the current tax system.  

Passing a new tax law to simply adjust the existing income tax brackets to inflation would not be that difficult.  They just need to update the income tax table with inflation-adjusted tax base values.

This is how an inflation-adjusted tax table would look like.

And to prove the point about the unfairness of the current tax system, let us check the sample computation below.

Given: Juan used to receive P10,000 monthly basic salary in 1997. He received salary increases to adjust for inflation and his monthly pay is now worth P22,000.

Assuming 13th month pay, Juan's annual salary increased by 115% from 1997 to 2015 (from P130,000 to P286,000) because of inflation.

Under the current tax table, Juan's 2015 income is subject to a higher rate of tax because of the unadjusted tax brackets. Everything has already been adjusted to inflation, except for the tax brackets.  Thus, Juan is clearly overtaxed by P5,350 under the current unjust tax system! 

What else do we need to prove more?

The #TaxReformNow Movement proposes that the inflation-adjusted tax brackets be enacted in this 16th Congress to immediately address this long-standing unfairness in the personal income tax system. This is a simple act of justice that we MUST demand NOW from our leaders in both the Executive and Legislative branches of government.

The P30 billion price tag they put to it will all be worth it... if only to ensure that each and every working Filipino will continue to be taxed at the same rate and receive the same value of net take-home pay in 2015.  Otherwise, Filipino taxpayers will continue to suffer from this injustice until another 2 years when the new Administration comes in and settles down.  And we definitely cannot wait that long anymore.  

Tama na. Sobra na. Income Tax Ibaba! 

Time for #TaxReformNow.

PS - If you believe in this cause by the #TaxReformNow Movement, join the #BlackPayday protest on October 15, 2015. Wear black or change your social media profile pic to black to mourn the unjust, sad state of our current tax system. It's about time for our silent voices to be heard. 

WHY TAX REFORM NOW?

A lot has happened since August of this year on the Tax Reform issue.  

We have seen how our legislators, particularly Cong. Miro Quimbo and Sen. Sonny Angara, pushed hard for their Tax Reform proposals on the adjustment of income tax brackets and the lowering of income tax rates.  We also read about the House Leadership strongly backing them initially on the passage of such Tax Reform proposals.

Then, we heard the President reject outright the calls for Tax Reform by echoing the arguments of the DOF and the BIR, particularly on the budget deficit that will lead to a downgrade by credit rating agencies. In response, TMAP and 17 other broad-based organizations banded together and issued a Unity Statement in support of calls for Income Tax Reform. 

After which, there was a meeting called by the President with Tax Reform champions Cong. Quimbo and Sen. Angara, wherein the President subsequently asked the DOF and BIR to re-study their proposals.  

Suddenly, there was a glimmer of hope that finally, the President might actually listen and heed the call of his bosses. 

But, just very recently, it was disconcerting to hear the House Speaker seemingly having a sudden change of heart by saying that there is no time anymore for the 16th Congress to pass the proposed tax reform measures.

So, where do we go from here? 

There is no denying that everybody agrees that our country badly needs Tax Reform. Even the DOF and BIR oftentimes profess their support for a comprehensive and holistic Tax Reform. Unfortunately for us, this simply means that they agree to Tax Reform in the long-term (when they are no longer around) but, definitely, not now (under their term). 

But then, we ask them, given that we are seeking a comprehensive and holistic Tax Reform -- WHY NOT START NOW?  

To answer this, we have to first acknowledge three (3) Basic Truths on the issue of Tax Reform.

1) The Personal Income Tax (PIT) system is inherently unfair because of unadjusted tax brackets for the past 19 years. 

There is no denying that taxpayers, particularly salaried workers, have long suffered from the issue of "bracket creep" due to failure of previous administrations to index the income tax table to the Consumer Price Index (CPI).   

2) The BIR heavily relies on salaried workers for PIT collections. Self-employed and professionals contribute very little.

80% of PIT collections come from salaried workers.  While the BIR has tried to run after self-employed and professionals with its shame campaign, it still has little success in expanding the tax base and generating more collections from them.  

3) In this age of ASEAN Integration, our income tax system (both for personal and corporate) has lagged behind our ASEAN neighbors in terms of lower income tax rates. 

Through the years, the staggered reduction of income tax rates has become part of the tax policy of our ASEAN neighbors. This has promoted tax competition within the region in order to attract foreign investment and stimulate the economy.  

Given these three (3) Basic Truths, why do Tax Reform advocates, like me, push for Tax Reform NOW? Can we just not wait for the next Administration to come in?  

First of all, Tax Reform advocates do NOT really expect all reform measures to be passed this year. That would be unrealistically impossible!  

Secondly, Tax Reform advocates do support the need for comprehensive and holistic Tax Reform measures to ensure that, at the end of the day, we will have a more fair, progressive and simplified tax system.  A reformed tax system will help ensure inclusive economic development for our country and people.

Lastly, Tax Reform measures which seek to address the issues of broadening of the tax base (through simplification of the tax system) and tax competition (through lowering of tax rates) can come along later.  These measures do require further extensive study and discussion. 

HOWEVER, the call for #TAXREFORMNOW is deemed urgent in addressing the issue of FAIRNESS, particularly in terms of indexing the tax brackets to inflation.

If we already know that there is inherent unfairness in the PIT system because of unadjusted tax brackets, why not act on it at the soonest by indexing them to inflation NOW?  Why continue to perpetuate the unfair tax system and leave it up to the next Administration?  

Also, the proposed adjustment in the tax brackets due to inflation will not change the existing PIT system.  It will remain under "status quo," which is what the DOF and BIR wants until a comprehensive, holistic reform is made. 

The only change is for the underlying tax bracket values in the income tax table. This is no different from what the BIR did under Commissioner Kim Jacinto-Henares at the start of PNoy's term, wherein the BIR adjusted for inflation the VAT-exempt threshold amount.

Under RR 16-2011 dated October 27, 2011, the BIR adjusted for inflation the value of goods and services considered exempt from VAT.  The BIR updated the values just after 5 years -- i.e., from its 2005 values to its 2010 present values at that time. This resulted to reduced VAT collections for the Government AND the BIR did NOT make any fuss about the foregone revenues resulting from the higher VAT-exemption. 

Why then does BIR not do the same in supporting proposals to adjust the tax brackets for individual taxpayers, which will benefit mostly low and middle-income salaried workers? Surely, 19 years of unadjusted values should have merited its attention and quick support.

#TAXREFORMNOW is not an unreasonable populist call, as some would like to paint it. It is not there just for "pogi" points of legislators who have been pushing for it right at the start of the 16th Congress, not just in time for this 2016 elections. It is a real response to the plea for justice and mercy on behalf of millions of salaried workers who have long been overtaxed in this inherently unfair tax system.  

Having said this, the Tax Reform measure of indexing the tax brackets to restore fairness in the system could NOT simply wait anymore. Napapanahon na ang pagtatama ng sistema ng pagbubuwis.  Hindi na ito puedeng ipagpaliban pa.  

As the saying goes, "Justice delayed is justice denied."  

And if our Government would knowingly chooses to ignore this plea, then rest assured that we, the salaried workers, will always remember this Administration for its grave sin of omission, especially this coming elections. 

There is still time to pass a tax reform law, Mr. Speaker.  Pag gusto, may paraan.  Pag ayaw, maraming dahilan.  You just need to enact into law the indexation of tax brackets. That is what is most important at this point.  The other reforms can be handled by the 17th Congress, which hopefully will be more supportive and courageous in pushing for Tax Reform. 

There is still time, Mr. President, to change your mind and heed the voice of your people. Let their cry not be drowned out by the usual rhetorics of the DOF and BIR, which prioritizes short-term revenue collections over long-term equity and growth. Let this single act of Tax Reform be your greatest legacy towards "Tuwid na Daan."

Fellow taxpayers, this Tax Reform advocacy presents to us a once-in-a-lifetime opportunity to realize meaningful changes in the Philippine tax system. It is NOT yet too late. If we let this chance pass us by, it will take at least another two (2) years before we get another crack at Tax Reform. 

Let this be the time to make our voices heard -- #TAXREFORMNOW. May we all never ever give up! 

   

PNOY MOST-WANTED: A LEGACY OF TAX REFORM

As we await for President Benigno S. Aquino's final State of the Nation Address (SONA) to the nation next Monday, July 27, 2015, many taxpayers are hopeful that he will include the Tax Reform Agenda for his final year in office. 

Senator Sonny Angara recently mentioned that lower income taxes will be PNoy's best good-bye gift to the Filipino people as he cited the numerous arguments in favor of it. 

And that is so true.

There had already been a lot of discussion in the past year between legislators, tax experts (led by the Tax Management Association of the Philippines or TMAP) and the DOF on this matter, particularly on the revision and updating of the individual income tax table. 

In fact, during the last hearing at the House of Representatives Ways and Means Committee chaired by Congressman Miro Quimbo, all parties, including the DOF, already agreed on certain principles to make the personal income tax system more equitable. All that has to be done is for our legislators and the DOF to finally agree on a revised personal income tax table with updated tax brackets and effectively lower income tax rates. 

There are still five (5) more months before the year ends. A lot of things can still be done by Congress in passing a law that will jump-start this country's Tax Reform Agenda. 

Many of us, however, believe that Congress can only bravely do so IF AND ONLY IF they get the go-signal from the President who, unfortunately, has been hearing mostly misgivings from his Executive team, which was looking only at its short-term effects.

While it is understandable that the Government's revenue collections will likely go down in the short-term because of the proposed tax cuts, as a leader, PNoy has to look forward and see beyond what is best for this country in the long-term, way beyond his 6-year term which will soon about to end. 

PNoy has already done this for the country's educational system when he supported the Department of Education's (DepEd's) shift to the K-12 program -- this despite the many transition blues in the short-term. Maybe the only difference in this case is that DepEd was bold enough to see beyond the birth pains, believing that this will be good for our educational system and provide more opportunities for our youth in the long-term. 

We continue to hope that, as the President reflects on his last year in office in preparation for his final SONA, he will be brave enough to leave behind a lasting legacy to his people -- that is, a Tax Reform Agenda that will provide, not only immediate relief for many low and middle-class taxpayers who have long been suffering from very high income tax rates but, also provide a roadmap towards developing a tax system that will be more fair and equitable to all concerned.

For it is only when a tax system is perceived to be fair and equitable that taxpayers will willingly contribute their share in nation-building.    

Let's wait and see on Monday if PNoy will grab this historic opportunity. He can choose to look away and pretend not to hear the clamor for tax reform. Or, he can choose to move forward and leave behind that one great legacy of Philippine Tax Reform.