Why Angara is pushing for lower income tax rates

by Jon Carlos Rodriguez, ABS-CBNnews.com

Posted at Mar 18 2014 03:09 PM | Updated as of Mar 18 2014 11:09 PM

MANILA, Philippines – Senator Sonny Angara on Tuesday said he is pushing to lower income tax rates to help the country become more competitive compared to its ASEAN neighbors.

Among ASEAN countries, the Philippines currently ranks third highest in individual income tax rate at 32%.

Thailand has the highest tax rate in the region at 37%, but the country is also trying to lower it to 35%.

Vietnam is second with 35%, also down from 40% in 2013.

Under Senate Bill 2149, Angara is looking at a 3-year adjustment period, with individual income tax rates cut down from 32% to 28% in 2016 then to 25% in 2017.

He added that tax brackets will also be adjusted to take out the P10,000 base and increase it to P20,000-P70,000.

Under the current system, those earning P10,000 a year are taxed 5%. Angara is proposing to increase the lowest tax base to P20,000-P70,000, and tax that bracket 15% in 2015; 13% in 2016; and 10% in 2017.

“We don’t just adjust the rates, the percentage that’s taken from your income, you also adjust the thresholds because ‘yun ang importante. But what our constitution says is that you must have a progressive system of taxation, meaning if you’re richer, you have the capacity to pay more. If you earn just a little, the government won’t take as much from you,” he told ANC.

Angara, who is the chairman of the Senate Ways & Means Committee, said the country’s tax system is outdated and no longer applies to the current cost of living.

“We studied the tax system and medyo luma na siya. In fact, our tax rates date back not only to 1997, it dates back to 1977, during the time of President Marcos,” he said.

The lawmaker also believes that lowering income tax rates will increase purchasing power and improve compliance.

“We are hoping that this will induce voluntary compliance. There are studies that have shown that as you lower the tax rates, compliance tends to get better. But the assumption there is that you have a credible tax collector and in BIR [Bureau of Internal Revenue] Commissioner Kim Henares, natatakot ang tao, and the belief also is ginagastos naman ng Aquino administration in the right way. So for me, it’s the right time,” he said.

He noted that his bill is still open to negotiations and suggestions from the BIR and the Department of Finance (DOF).

The DOF earlier said the government could lose as much as P43 billion in taxes by 2017 from Angara's proposal.

Henares, meanwhile, said the BIR is open to studying the proposal but the agency still has to address other loopholes in the tax system.

Malacanang has refused to comment on the proposal, said they are leaving the decision to the BIR and the DOF.

Senators Ralph Recto and Bam Aquino also have filed bills seeking to adjust tax brackets.

Angara believes these bills will not receive much opposition from other government agencies.

“Wala siguro kasi apektado din sila eh. I think they’ll also be happy in paying with more money in their pockets to spend for their families,” he said.