Tax Data: 92% of Taxpayers Earn 33K and Below! Tax Reform Equals Tax Increase!

Income Tax bracket from the DOF’s Infographic on the Tax Reform and the breakdown of taxpayers from the BIR…

 

I am using the tax data above from the DoF to put into perspective the income distribution of the domestic population

If the data is accurate, then this provides a startling profile of the resident consumers.

A total of 92% of the (taxpaying) population earns a monthly income of Php 33,333 and below!!!!

And such level of income supposedly represents the vaunted consumer economy? The consumer economy whereby waves and waves of shopping malls, hotels and residential housing projects have hurriedly been built for?????????????????

 

In my view, this income bracket would be highly sensitive to rising real economy prices, such as rents, food, transportation and more…, and would unlikely function as a key source of munificent disposable income.

And such group have likely used payroll loans to augment their income. Payroll loans have been growing at a furious rate at 30+% and above, and which growth rate have climbed alongside with CPI from 2015 to 4Q 2016.

More. The Philippine Statistics Authority estimated that for April 2017 the labor force population was at 69.6 million. The population of individual taxpayers as of December 2015 was around 17 million. Let us assume that individual taxpayer grew to 18 million from 2015 to April 2017. The numbers suggest that 51.6 million of the labor force or 76% have not been paying taxes!!!

And have most of the non-taxpayers signified the informal economy where income bracket falls in the range of the DoF’s 33K and below? Grab and Uber drivers for instance?

Also, such numbers imply of a mammoth leakage in the individual taxpayer’s system. No wonder the DoF’s tax reform.

Yet for the spend spend spend ‘spend your way to prosperity’ to happen is if a huge number of high-income earners comprise the informal economy or haven’t been paying taxes.

Now for a short take on the DoF’s proposed tax reform.

With the government’s thrust to undertake Php 8.4 trillion in infrastructure projects along with many other welfare programs, only a buffoon would believe that the DoF’s tax reform would amount to tax cuts.

The government proposes to shift its tax base structurally from income to spending. That would be aside from boosters in the excise tax on petroleum products and on automobiles. As shown above, the government has had a difficult time expanding the base of individual taxpayers.

So desperate for funding, it instead proposes to expand the supply side tax base through an expanded VAT coverage.

According to the DoF, while the Philippines have the highest VAT rate in the region, it has the most exemptions: 59 based on the tax code and 84 additional exemptions in special laws.

Among the proposed VAT exemptions to be removed are those on cooperatives, replacement of franchise tax with VAT for Power transmission, lease of residential units, domestic shipping importation, boy scouts and girl scouts, low cost and socialized housing, indirect exporters and agents and foreign currency denominated sales.

Wow rent prices will soar!

The thrust towards an expanded VAT system comes with a consolation: income taxes will generally fall. The lowest category of taxpayers would be exempt from tax payments. That would look good except that the supply side tax increases or the VAT will more than offset whatever savings from cuts in income taxes.

For instance, the call center agent who earns Php 273K a year (Php 22.75K per month) would see a tax savings of 21,867 or 8%. Great but…

…if the call center agent buys all of his/her requirements from the sari-sari store A which sales have been more than Php 3 million a year, then such store would be subjected to VAT. And since sari-sari A would pass the VAT to the consumers then this translates to 12% increase in prices.

So such magnitude of price increase would more than wipe out the savings from the tax exemptions.

And if call center agent buys from Sari-sari store B which sales is below Php 3 million a year, then the saidsari-sari store will be subjected to Non-VAT taxes of 8%. This tax sleight of hand means again that whatever savings from “exemptions” would only be transferred to as higher consumer prices through an expanded VAT.

At the day’s end, the tax reform represents a general tax increase and that there would hardly be any savings for income earners.

Higher taxes mean a lower standard of living for the citizenry. Higher taxes extrapolate to a bigger payday or a windfall for the government and for their favored private sector patrons.

The DoF’s tax reform essentially signifies the “crowding out” process in motion.

Quote of the Day: Slash Taxes to Restrain Government

This is the problem with taxation. Major public corporations can move their tax domicile offshore to avoid taxes legally. The average person cannot move his labor offshore to lower his taxes, which is a disadvantage we must address with tax reform. VAT is far worse than a sales tax. Every person in the chain must collect and file paperwork. It must require three times the number of people to administer such a system compared to a point of sales tax collection.

But that issue aside, there should be ABSOLUTELY NO income taxes whatsoever. That not only eliminates government having to track everything, but it also eliminates the whole movement of capital solely for tax purposes. This is unfair, for the average person cannot send their labor offshore to avoid taxation without moving. Even then, that would only get an American the first $100,000 tax-free; after that, it would be subjected to U.S. income tax. 

The Founding Fathers of the United States revolted over taxation without representation. We are back to that now, for we are being taxed to pay interest to service debts from the last two generations. We had no right to vote on that spending, which took place before we were born. This is not a democratic process.

There should be ONLY a retail sales tax EXCLUSIVELY for local government. Federal government should be prohibited from imposing ANY tax and it should be barred from borrowing money. The local tax will naturally be checked by the free market, for if they keep raising taxes, businesses will move to the next town and there goes the jobs. This will help to restrain government on a more practical level.

This is from former Princeton Economics chairman and present day analyst, Martin Armstrong at his website.

Aside from than administrative taxation, the INFLATION TAX should be ABOLISHED.

Infographics: Taxes Around the World

(hat tip zero hedge)

Source: Online-Accounting-Degrees.net

Possibly one of the reasons for rising food prices in the world can be also be traced to Denmark's bizarre "Cow flatulence tax". 

Anyway, global tax on wages reportedly rose in 2013. The Reuters says that total world taxes on wages rose to 35.9% in 2013 from 35.7% a year earlier based on OECD data. 

You can see the graphic on tax wedge and unemployment rate of the OECD countries by clicking on the link here.

Quote of the Day: Income Tax: Its unpopularity will grow with its life

POPULARITY OF THE INCOME TAX.

The Chamber of Commerce has directed an inquiry into the administrative feature of the income tax after a debate in which it was said that the tax would not affect 99 per cent. of the citizenship. It was suggested that this deprived the bill of general interest, and that it was sure to be unpopular on account of the narrowness of its application.

[...]

The case is worse than this. It will tax the honest and allow the dishonest to escape. The administrative features which the Chamber is to investigate are so complicated that those who understand them will make their taxes light at the cost of those less well informed about the law. The income tax law may be considered good nevertheless by some, but even those who approve the tax despite its faults cannot contend that the same sums could not have been raised more certainly, more equitably, and with less trouble to both payers and collectors by a stamp tax.

The experience with the tariff shows how hard it is to reduce or remove a tax once laid. It always seems better and easier to devise ways to spend the money than to repeal the tax. This fact will be better appreciated as the years pass, and particularly when the time shall come when this extraordinary tax–as it ought to be–shall be needed for an emergency. Then it will appear that this resource has been utilized and that the tax must be doubled instead of imposed initially. The tax was most popular before it was laid. Its unpopularity will grow with its life.

This is from the New York Times published in April 12, 1913 when the income tax had been made a permanent fixture in the US tax system via the Sixteenth amendment to the US constitution (hat tip Mises Blog)