Daven Tamayo

‘Middle class is being squeezed to death’: Tax expert pushes P1-M income tax exemption

The newly opened overpass in Sen. Gil Puyat Ave. in Makati after its inauguration, Friday (14 July 2017). The opening of the first of two new pedestrian overpasses is expected to ease up traffic in the busy streets of the Central Business District. The footbridge stretches from the RCBC Plaza building to The Columns Ayala Ave. George Calvelo, ABS-CBN News

Article (news)

Raine Musñgi

ABS-CBN News

MANILA — Filipino workers earning as much as P1 million annually should be exempted from income taxes to help revive the country’s struggling middle class, according to tax reform advocate and Asian Consulting Group chief tax adviser Mon Abrea.Speaking on ANC’s Market Edge, Abrea said the Philippines has become too dependent on salaried workers for tax collections while corruption, weak enforcement, and political instability continue to discourage both taxpayers and foreign investors.“The government for the longest time has relied on our middle class instead of the middle class relying on government,” Abrea said.Citing Bureau of Internal Revenue data, Abrea said 82 percent of personal income tax collections still come from compensation income earners.“In fact, the public good is becoming narrower as time goes by,” he said. “As long as we can afford, the middle class will always pay for everything.”Lawmakers in both the Senate and House of Representatives are currently studying proposals to raise the tax-exempt income threshold from P250,000 to P500,000 or even P1 million annually.Abrea called the proposal a “long overdue adjustment” that could boost consumer spending, encourage investments, and give ordinary Filipinos more financial breathing room.“The Philippines’ middle class are not [a] real middle class because they are one sickness away from being bankrupt or highly indebted,” he said.He added that increasing take-home pay may even encourage some overseas Filipino workers to return home and work in the Philippines.“It might even attract more OFWs to consider coming back and working in the Philippines,” he said.But Abrea warned that tax relief alone will not solve the country’s deeper structural problems unless the government aggressively addresses corruption and tax evasion.“Our biggest revenue loss is still corruption,” he said.<div> </div><div><iframe width="640" height="360" src="https://www.youtube.com/embed/XsVH8A-s2J8?&amp;t=2s&amp;wmode=opaque&amp;rel=0" frameBorder="0" allowfullscreen="" class="fr-draggable"></iframe> </div>Abrea urged authorities to audit unexplained wealth, strengthen anti-tax evasion enforcement, and revisit bank secrecy restrictions during tax investigations.He also backed the implementation of the global minimum tax framework, which seeks to impose a 15-percent minimum corporate tax on large multinational corporations shifting profits to low-tax jurisdictions.The Department of Finance earlier committed to adopting the OECD-backed framework as part of efforts to broaden the tax base without overburdening salaried workers.On proposals to suspend or reduce value-added taxes on electricity, Abrea said the government should focus on structural reforms rather than temporary relief measures.Instead of fully suspending VAT, he proposed reducing the rate from 12 percent to 10 percent while improving tax collection efficiency and tightening enforcement against abuse of VAT exemptions.The Philippines currently imposes one of Southeast Asia’s highest VAT rates at 12 percent.Abrea warned that broad VAT reductions without reforms could create as much as P300 billion in revenue losses based on Department of Finance estimates.“That’s a lot,” he said. “The government will have to loan more.”The Philippines’ national government debt has already exceeded P18 trillion, based on Bureau of the Treasury data.<div> </div><div>CORRUPTION, INSTABILITY </div>Abrea also said political instability has become an increasing concern among foreign investors evaluating the Philippines against regional competitors such as Vietnam, Indonesia, and Thailand.“Right now, the political noise all this year in the Senate is becoming a huge concern,” he said.“In two of our briefings, I was asked directly about it, what’s really happening in the Philippines?”Despite the political tensions, Abrea noted that the government has continued implementing reforms including CREATE MORE, the Ease of Paying Taxes Act, and ease-of-doing-business initiatives.President Ferdinand Marcos Jr. is also in Japan this week to sign a new double taxation agreement aimed at strengthening investment ties between Manila and Tokyo.Abrea said tax treaties help assure foreign investors they will not be taxed twice on the same income and provide additional security for businesses operating across borders.But he stressed that investor confidence ultimately depends on transparency, accountability, and consistent enforcement of tax laws.While welcoming the Bureau of Internal Revenue’s digital taxpayer portal and faster business tax clearance processing, Abrea said public trust in the tax system remains weak.“These are welcome developments, definitely,” he said, “but it doesn’t change the fact that we still don’t trust the BIR.”He criticized the absence of high-profile tax evasion cases involving politicians and contractors linked to major controversies, warning that ordinary taxpayers increasingly feel unfairly targeted.“The tax code should not be weaponized against ordinary taxpayers,” Abrea said.He pushed for full digitalization and integration of tax and customs systems, alongside stricter transparency and anti-corruption reforms.“At the end of the day, what we want is that the rich and powerful will pay more taxes and ordinary Filipinos will not have to carry the burden of funding the government,” he said.Abrea also encouraged Filipinos to diversify their income streams amid economic uncertainty by investing in stocks, bonds, foreclosed real estate, and digital economy opportunities.“Let’s not just focus on one source of income,” he said.Catch the full interview with Mon Abrea on Market Edge and on YouTube with ANC 24/7.

A tax expert noted that many members of the middle class are just one serious sickness away from bankruptcy or falling into debt.

A tax expert noted that many members of the middle class are just one serious sickness away from bankruptcy or falling into debt.