NEW YORK, New York, United States — As Filipinos paid their income taxes this April, some employees in the middle-income bracket may have found themselves paying at a higher tax rate than their wealthier bosses, a number of whom derive income not from salaries but from investments in stocks and time deposits, which are levied lower final taxes and are not included in the computation of the taxable income. The labor force also sees how professionals and entrepreneurs are able to take advantage of tax avoidance mechanisms, resulting in the bulk of the government’s income tax collection coming from the salaried workers rather than the obviously richer class despite the heightened and high profile tax collection campaign of the Bureau of Internal Revenue.
This inequity in the tax system is not unique for the Philippines. Here in the United States, the New York Times reports that President Barack Obama and his wife Michelle had adjusted gross income of $789,674 in 2011 and paid just over 20% ($162,074) of it in federal taxes. Mr. Obama’s secretary, Anita Decker Breckenridge paid a slightly higher tax rate than her boss in 2011 on a salary of $95,000.
The presumptive Republican presidential candidate Governor Mitt Romney and his wife have filed with the Internal Revenue Service for a six-month extension to file his 2011 return although in January, upon prodding by his Republican rivals, he did release documents showing an estimated $20.9 million in 2011 income and payment of $3.2 million in taxes for an effective tax rate of 15.4%.
A survey by the New York Times and CBS News Poll conducted April 13-17 based on telephone interviews showed that a majority of voters say upper-income Americans pay less than their fair share of taxes, while half say capital gains and dividends should be taxed at the same rate as income from work. These strong sentiments are giving support to the proposed “Buffet Rule,” a minimum tax for the wealthiest Americans. Mr. Warren Buffet, an American billionaire, had testified in congressional hearings that he is doing well, does not need tax loopholes and could afford to pay more taxes as he assumed others similarly situated as him could also do.
During hard times like what the United States is going through, proposals like the “Buffet Rule” easily get popular support. Many will not accept the concept that a robust stock market helps raise capital for enterprises that then generate jobs and have a multiplier effect on the country’s economy. Others will not easily go with the thinking that saving the US financial institutions and banks with government funds was necessary to stabilize the financial and banking system so essential to trade and business. What the taxpayers see are the still extravagant compensation of the top executives of bank and financial institutions and the still higher incomes these companies have been making since the government bailout.
Before this mindset takes root in the Philippines, the banking and financial industry must launch an information drive to make clear to the public how the Philippine stock market operates to encourage investments and job creation rather than just a convenient pool for rich Filipinos to park funds and earn more income at very low final tax rates. The banks have to show how their low cost deposits are being channeled to productive sectors of Philippine economy which result in increased employment.
Unless the tax system in the Philippines passes the test of fairness and equity, tax reforms could become a major issue in the coming senatorial elections as it has become in the US presidential campaign.
Business Bits. Contrary to popular belief, I am finding out that New Yorkers are most considerate, thoughtful, and friendly, at least the ones I have met so far.
source: mb.com.ph