Today, April 15, is the deadline for payment of 2018 income taxes. There is no extension — better file your income tax returns (ITR) or else, for even one day later, you suffer the one-time 25% penalty/surcharge plus 20% interest per annum until payment. You must pay income taxes through a BIR-accredited agent bank (AAB) who will credit BIR with your payment. Mind that whether you have taxable income or none, or if you have a computer or access to a computer or not, you have to separately file an electronic ITR, to immediately and officially register your filing with the Bureau of Internal Revenue (BIR). You can go to any BIR “E-lounge” for assistance and guidance on the filing of your ITR, but you will still have to pay first (if you have any tax to pay) through an AAB before electronic filing. No escape except death (though your heirs cannot escape inheritance taxes either).
The Tax Reform for Acceleration and Inclusion Act (TRAIN Law) made effective January 2018 brought down the cut-off for taxable income to P250,000, meaning those earning P250,000 and below are exempt from income taxes. This is the first tax year that this cut-off is applied, while before, the first P250,000 of income was subject to a flat initial tax of P50,000, and the rest of income subject to an increasing percentage-rate starting from 30% of income over P250,000. Let’s see how this relieves the lower-income Filipino taxpayer.
According to the Department of Finance (DOF), “Some 6 million Filipinos earning P250,000 and below who comprise 83% of the base for individual taxpayers will no longer pay the personal income tax (PIT) under the TRAIN… Of this number, some 28% or 2 million are minimum-wage earners, who are already exempted from the PIT, and 55% or 4 million more are those earning above the minimum pay but not over P250,000 per year” (dof.gov.ph June 8, 2017). Based on the old flat rate PIT of P50,000 for those earning P250,000 and below, TRAIN has forfeited what would have been P300 million government tax collection from 2018 PIT.
On this first year of TRAIN tax reforms, those with net taxable income (NTI) of P250,000-P400,000 will pay 20% of the excess of P250,000; over P400,000-P800,000 will pay P30,000 + 25% of the excess of P400,000; over P800,000-P2 million will pay P130,000 + 30% of the excess of P800,000; over P2 million-P5 million will pay P490,000 + 32% in excess of P2 million; and over P5 million will pay P1,450,000 + 35% in excess of P5 million (Ibid.).
Note that the brackets of increase have been decreased to five categories with wider range of incomes in each bracket. This means those who previously enjoyed less additional tax under lower ceilings are now pulled up to the upper level of the next higher-income bracket. Grossing up the estimated 6 million by .83 would give an estimated 7.23 million paying PIT, now more broadly categorized.
But what is the mean income of Filipino PIT payers?
An actual and representative case of a young professional, self-employed with multiple earnings sources shows her transition from the PIT of 2017 to 2018 under TRAIN, on a gross income of P400,000/yr (close to some estimated medians P369,922-P377,000/yr) for 2018-2019). Under the old BIR forms, the first P250,000 was assessed a flat P50,000 initial tax + P45,000 of the overage income of P150,000 at 30%, or a total 2017 PIT of P95,000. For 2018 PIT, the taxes she paid were P30,000, which was 20% only on the excess of P150,000 over the tax-free P250,000. Good deal, she says, and thanks to TRAIN for the tax reprieve of P65,000.
But from a deep concern for the BIR’s tax collection efficiency, and the honesty and compliance of taxpayers, it was noted that those earning from various sources now have the dubious advantage (if seen this way) of cutting that income to slices of below P250,000 — tax exempt. Encouraging this “flexibility” may be the indifference of withholding entities to declare part-time and consultancy “employment” relationships, who do not now withhold the usual 10% withholding taxes on such — as these unique situations would not “summarize” and total a person’s various employments, and no one would know (except the taxable individual) whether the P250,000 tax-exemption had been exceeded. It would be a question of the individual taxpayer’s honesty, as he/she would now be below the BIR’s “radar.”
And what about professional fees like those of doctors, lawyers, technical consultants, brokers, artists, etc., who can shun receipts, with the complicity of clients, who can be tempted with discounts in lieu of official receipts? The BIR should really tighten, instead of loosen its controls over collectible taxes. Thanks to the generosity of TRAIN to present taxpayers, particularly to the “poor” — those earning below P250,000 and those doing all sorts of contortions to be called “poor” to enjoy the tax breaks and the lowered tax brackets. But note too, that foregone government revenues and maintaining subsidies will ultimately be paid for by the poor, who will suffer delayed if not deprived improvements in the quality of their lives. The rich will not be affected.
And so we always have to think of our poorer Filipinos, for whom the leavings of the richer will suffice. According to the data from the National Statistical Coordination Board, more than one-quarter of the population fell below the poverty line the first semester of 2014, an approximate 78% increase since 2013 (psa.gov.ph). Ay, the sad state of statistics in the Philippines! Can we not have more up to date feedback from our government? “Other studies in the recent past have indicated that up to 30 percent of Filipinos were classified as extremely poor, and remained so despite direct aid programs such as the conditional cash transfer, a recent Philippine Star editorial said (philstar.com April 13, 2019).
“Incredulity has greeted the release of a report showing that poverty incidence is down, as measured by the Philippine Statistics Authority. Critics consider the timing of the release suspect and in aid of election for administration candidates, while organized workers see it as an attempt to discourage wage increases” (Ibid.) When the PSA said that the proportion of Filipino families who lived below the poverty line from January to June 2018 was at 16.1%, down from 22.2% during the same period in 2015, economic think tank IBON Foundation said the PSA report “grossly underestimates the real number of poor Filipinos” (abs-cbn news April 14, 2019).
Mahar Mangahas of Social Weather Station (SWS) said that by his calculations, “poverty crept back up to 46% in 2017, and then to 48% in 2018 (inquirer.net April 14, 2019). “The PSA has no data about how poverty moved during 2016 and 2017 since it does its Family Income and Expenditure Surveys (FIES) only once every three years, and had no FIES in-between 2015 and 2018,” Mangahas said. He further explained that “the PSA will skip 2019 and 2020 entirely, and have no more poverty data until the 2021 FIES, which it will be ready to report only in 2022” (Ibid.).
Alas that many so-called fantastic improvements in our economic lives have not really considered financial inclusion. Do we have to make 7.3 million income earners happy, while 31.5 million Filipinos are so poor?
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.