ARGUMENTS FOR NECESSITY

1. To address the built-in inequity and outdated personal income tax system
Maintaining the status quois no longer acceptable for the working sector
which has endured the impact of inflation through the years.
The 10 income tax brackets with P500,000 as top tax base were set in July 1986
and have stayed substantially intact since then. Also since 1986, the National Statistics
Office says, consumer prices had increased by 539.53% in 2014. The P500,000 top
tax base is now equivalent to P2.697 million (as adjusted for inflation).

The inherent inequity in the tax system is brought about by the fact that the top
bracket of P500,000 has remained unchanged since 1986. Meanwhile, inflation has
pushed up consumer prices by more than 300% resulting to the so-called bracket
creep. Inflation has pushed up nominal wages and salaries into higher tax brackets
causing increases in income taxes but no increase in purchasing power. Effectively, the
government has been unjustly relying on inflation to collect more taxes from salaried
workers, who bear the bulk of tax burden among individual taxpayers, rather than
through efficient tax administration.

In place of manually adjusting tax brackets (which the government has not done in
nearly 20 years), bracket creep can easily be countered by a system of index-linked tax
brackets. Therefore, automatic indexing every three (3) years of tax brackets on the
basis of CPI will ensure that taxes will increase only as the real income of salaried
individuals increase.

Given the burden of rising prices and a regressive tax system, the lowering or even
removal of taxes on low and middle income families is long overdue, research group
IBON said.

IBON approximates around 5-6 million Filipinos and their families being doubly burdened
by higher taxes and by having incomes eroded by inflation. The prices of goods and
services increased by at least 110% between 1997 and 2012, according to Bangko
Sentral ng Pilipinas (BSP) data.

Individual income tax brackets have remained unchanged since 1997 and been
overtaken by rising incomes. The nominal income of the lowest-earning 70% of Filipinos
increased by 137% between 1992 and 2012, according to the latest Family Income and
Expenditure Survey (FIES). This unduly brought many low and middle income families
into higher income tax brackets, even up to the highest bracket charging 32 percent,
according to IBON

Noel Alberto S. Omandap

 With the current income tax brackets and tax rates, the Philippines effectively
imposes the highest personal income tax in the whole Association of Southeast
Asian Nations region. A study presented by the Tax Management Association of the
Philippines (TMAP) shows that a Filipino taxpayer earning P500,000 annually is taxed at
32%. The comparative tax rates for equivalent income in other ASEAN countries are:
Vietnam, 20%; Cambodia, 20%; Laos, 12%; Malaysia, 11%; Thailand, 10%; Singapore,
2%; and Brunei, no taxes.
January 2015 data from the National Wage Productivity Commission show the highest
daily minimum wage was P466, or P123,000/year (in Metro Manila) and the lowest is
P213, or P56,232/year (in Ilocos region). While minimum wage earners are tax
exempt, these income levels fall short of the Family Living Wage (the minimum
amount needed by a family of six members to meet its daily food and non-food
needs, plus a 10% allocation for savings). As of August 2014, Ibon Foundation
estimated the Family Living Wage at P1,086/day, or P396,390/year.
Under the prevailing tax system, once a minimum wage earner acquires additional
income no matter how small in excess of the minimum, the entire income
becomes taxable.
From 2010 to 2013, according to Ibon Foundation, individual income tax payments
grew by 18%, compared to only 13.3% for corporate income taxes. In 2013, the share of
individual income taxes to total government revenues was 18.7%, whereas that of
corporate income taxes was only 12.9%.
Even taxes on purchases of goods and services grew faster than corporate
income taxes. Under the 2015 national budget, Ibon observes, the government will
continue to source revenues from indirect taxes. This disproportionately burdens
the low- and middle-income Filipino consumers, while boosting the incomes of
rich families and big corporations.
Under the current tax system, the TMAP notes, the government has been relying on
raising revenues through inflation, rather than through efficient tax administration. This, it
stresses, is detrimental to salaried workers, (who) account for about 80% of total BIR
collection from individual taxpayers.
Citing the BIRs annual report, TMAP points out that taxes withheld from salaried
workers were the single biggest-contributor group to the hike in BIR collections from
2013 to 2014: providing 2.5% (P31 billion) of the 9.7% (P118 billion) increase.

2. Due to ASEAN Integration

Sen. Bam Aquino said the country needs to alter its tax rates to make the
Philippines more attractive to foreign investors especially with expected
integration of the 10 member states of ASEAN in 2015

Noel Alberto S. Omandap

 Changing the threshold of exemption shall provide competitive tax rates for the
Philippine workforce with ASEAN Integration (due to workforce mobility)

Meanwhile, the Philippines effectively imposes the highest personal income tax
rate on the same taxable income of P500,000 (or its equivalent) and the highest
corporate income tax rate among the ASEAN-6 countries.

Reducing the personal and corporate income tax rates will make the Philippine
workforce and corporations doing business in the Philippines competitive with
their ASEAN neighbors.

Once ASEAN (Association of Southeast Asian Nations) 2015 kicks in, the
Philippines would have to compete on a better footing, and so tentatively we are
looking at a 25% corporate income tax rate. We are also looking at a 25%
personal income tax rate, down from 30% to 32%,"- World Bank Philippines
Senior Country Economist Karl Kendrick Chua

During the 2003 Asean Summit in Bali, the Asean leaders declared that
Southeast Asia is to be transformed into a stable, prosperous, and highly
competitive region with equitable economic development, and reduced poverty
and socio-economic disparities by the year 2020. Towards this goal, they had
adopted the Asean Economic Community blueprint which aims to establish an
Asean single market and production base whereby there would be a free-flow of
goods, services, investments, capital, and skilled labor within the region.

The blueprint lays down various measures, such as elimination of tariffs, trade
facilitation, customs integration, among other measures, to ensure that the goal
of an Asean single market. However, it is imperative that domestic tax laws of
each member state are amended accordingly, otherwise, countries such as the
Philippines would be left out despite the integration.

The 19-year-old personal and corporate income tax systems of the Philippines
are the "most uninviting and out of date" among the Association of the Southeast
Asian Nations (ASEAN) economies, several economists said.

As the ASEAN region moves toward a borderless economic community, the

Philippines will have the most uninviting tax systems among its ASEAN-6 peers
should the government not implement a tax cut.

Personal note: Hindrance to go with free flow of labor

This will characterize the ASEAN Economic Integration ERA a stiffer

competition for lower tax rates and more attractive tax incentive schemes

Noel Alberto S. Omandap

Compilation Of Important Statistical Data

According to FIES results in 2012 and as shown in Table 1, Filipino families had
an average annual income of Php 235,000 and an average annual expenditure of
Php 193,000, giving them savings amounting to Php 42,000.

Poverty incidence among Filipinos1 in the first semester of 2015 was estimated
at 26.3 percent. During the same period in 2012, poverty incidence among
Filipinos was recorded at 27.9 percent 2.

On the other hand, subsistence incidence among Filipinos, or the proportion of

Filipinos whose incomes fall below the food threshold, was estimated at 12.1
percent in the first semester of 2015. In the first half of 2012, the subsistence
incidence among Filipinos is at 13.4 percent 3. Subsistence incidence among
Filipinos is often referred to as the proportion of Filipinos in extreme or
subsistence poverty.

Food threshold is the minimum income required to meet basic food needs and
satisfy the nutritional requirements set by the Food and Nutrition Research
Institute (FNRI) to ensure that one remains economically and socially productive.
It is used to measure extreme or subsistence poverty. Poverty threshold is a
similar concept, expanded to include basic non-food needs such as clothing,
housing, transportation, health, and education expenses.

During the first semester of 2015, a family of five needed at least PhP 6,365 on
the average every month to meet the familys basic food needs and at least PhP
9,140 on the average every month to meet both basic food and non-food needs.
These amounts represent the monthly food threshold and monthly poverty
threshold, respectively. They indicate increases of about 17 percent in food
threshold and poverty thresholds from the first semester of 2012 to the first
semester of 2015

PSA also releases statistics on poverty among families a crucial social indicator
that guides policy makers in their efforts to alleviate poverty.

The poverty incidence among Filipino families based on the first visit of 2015
FIES was estimated at 21.1 percent during the first semester of 2015. In the first

Noel Alberto S. Omandap

semester of 2012, the poverty incidence among Filipino families was estimated at
22.3 percent 5.

The subsistence incidence among Filipino families, or the proportion of Filipino

families in extreme poverty, was estimated at 9.2 percent during the first
semester of 2015. In the same period in 2012, the proportion of families in
extreme poverty was recorded at 10.0 percent 6.

In addition to the thresholds and incidences, the PSA also releases other
poverty-related statistics in the report such as the income gap, poverty gap and
severity of poverty. The income gap measures the average income required by
the poor in order to get out of poverty, expressed relative to the poverty
threshold. The poverty gap refers to the income shortfall (expressed in
proportion to the poverty threshold) of families with income below the poverty
threshold, divided by the total number of families. The severity of poverty is the
total of the squared income shortfall (expressed in proportion to the poverty
threshold) of families with income below the poverty threshold, divided by the
total number of families. This is a poverty measure that is sensitive to income
distribution among the poor.

In the first semester of 2015, on the average, incomes of poor families were short
by 29.0 percent of the poverty threshold. This means that on the average, an
additional monthly income of Php 2,649 is needed by a poor family with five
members in order to move out of poverty in the first semester of 2015.

From 2000 to 2010, the household population in the Philippine has recorded an
increase of 15.8 million persons, or 20.7 percent, according to the results of the
2010 Census of Population and Housing conducted by the National Statistics
Office (NSO). However, household size has somewhat contracted with an
average 4.6 members from 5.0 persons per household in 2000.

Noel Alberto S. Omandap

Noel Alberto S. Omandap

Noel Alberto S. Omandap