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Screwing the taxpayer

A word of warning: The following column includes terms like income taxes, credit ratings, VAT and other stuff that has been known to befuddle even economics graduates who lucked into the highest post in the land—but who cannot understand what it’s like for an ordinary working stiff to hand over nearly half his salary to the taxman every payday.

It does appear that President Noynoy Aquino has decided. There will be no tax relief for four million wage earners because his glowing credit ratings are the more important consideration.

There will not even be any updating (or indexing) of the current tax brackets, last set in 1997, to adjust them for inflation. And because the rates have not been reassessed in nearly two decades, middle-income wage earners are now in the same personal income tax bracket as every Filipino billionaire in the Forbes Magazine richest list.

I’ve long suspected that the bid to revise income taxes that emanated in Congress early in Aquino’s term was not going to make any headway in Malacañang. This is, after all, an administration that has never made any bones about being insensitive to the poor, whether they be in calamity areas or just caught in traffic.

Of course, on top of all his problems, especially in the latter half of his term, Aquino didn’t need to be painted as insensitive to the ordinary wage-earner who is now paying around 32 percent in taxes. That tax rate, by the way, is applied to millions of taxpayers even before the mandatory pension-fund and PhilHealth deductions—and excludes the 12-percent VAT that they get hit with when they spend what little remains of their take-home pay.

But now, in the twilight of his term, Aquino feels he can get away with showing his true rich-kid colors, when he said that he will not allow any reduction in personal income taxes. (Of course, Aquino also said that he would not allow any increase in the hateful VAT, but that is not even on the table as far as the proponents of the reduction in income taxes is concerned.)

The truth of the matter, as many tax-reform proponents in both Houses have long pointed out, is that the indexing of income tax rates is only going to cost P30 billion in foregone government’s revenue. And when you have a government that has racked up more than P500 billion in “savings” from unspent budget items over the past two years, you really have to wonder why they won’t give some relief to the people who have no choice but to pay their proper taxes, and who have them deducted even before they lay their hands on their money—the fixed-income workers.

And how “losing” P30 billion in revenue that will give these taxpayers more purchasing power (which means more income from VAT) is bad for our country’s credit rating, only Aquino can really say. As far as I can tell, credit ratings are only marginally dependent on tax rates—especially lowered tax rates that are generally believed to increase consumer spending and cause more economic activity.

All I know is, instead of more spending money to buy food and other necessities, the ordinary wage-earner will have to content himself with investment-grade credit ratings. And if he wants to dine on something fancier, Aquino can offer him a lower budget deficit to go with that.

* * *

If you still want further proof that Aquino will just not give the ordinary working-class taxpayer a break, you have to listen to one of his other reasons—apart from protecting the country’s ratings and keeping the budget deficit in check (a likely story, given the piddling P30-billion revenue loss)—for not agreeing to lower personal income taxes. And that’s because, he said, an income tax reduction may not really benefit those who need it.

Let’s go, as they say, to the tape. Here’s what Aquino said in Iloilo the other day:

“The question is, will an income tax reduction really be beneficial to our countrymen? I’m not convinced right now... Those who will get hit may be more among those with a lesser capability to pay.” [Translation mine.]

In other words, Aquino said that an income tax reduction could actually help those who don’t need it. Since he certainly means that these undeserving people are those among the four million Filipinos groaning under the weight of taxes deducted “at the source,” he is not referring to those who pay no taxes at all because they have no work; neither is he referring to those millionaires who are enjoying the current tax regime because they pay the same taxes, percentage-wise, as salaried workers with their inflation-unadjusted rates.

But perhaps Aquino also believes that the income-tax issue will not have any repercussions on him, a political lame duck. That’s what he thinks.

Those four million taxpayers will remember what Aquino did not do for them, when he had the chance. And there will be hell to pay for Aquino’s candidates this coming May.

You don’t need an economic degree from Ateneo to know that. Just a whole lot of taxes and deductions from your ever-dwindling paycheck.

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