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.

Phisix 8,000 in the Shadow of the EPHE

As an old saw goes, what you see depends on where you stand.

Well, perhaps it could be more than just the position, but rather the positional effect of a defined optical activity. In a word, bias.

Bias shapes people’s perception, observation, discernment and eventual actions.

Biases, anchored on the mental “law of least efforts”, are often associated with heuristics or mental shortcuts.

And heuristics are often a product of crowd wisdom.

For instance, the current vertical price actions of several issues at the Philippine Stock Exchange represent symptoms of deeply held convictions that free lunches not only exists but has become an entitlement mostly for the financial industry.

The shibboleth of G-R-O-W-T-H has pillared the free lunch creed.

When the markets move higher, such heuristic goes into motion. When the market falls, the intuitive excuse would then shift to “expensive”.

Neither G-R-O-W-T-H nor expensive explains the causality of price movements. Although through the conditioning of mainstream experts such misperceptions have become embedded on the public.

 

Charts serve as great examples of how one would apply biases in the analysis.

For the bulls, the Phisix chart would look like a bullish ascending triangle whose resistance levels at 8,100 are presently being tested.

Forget the double top. Forget too of the steep rising wedge formations that have doomed the three previous vertical rallies since 2013.

This time MUST be different.

Aside from the Phisix chart, I offer another perspective: The US listed Philippine ETF, the EPHE. (see lower window)

iShares defined the EPHE or the iShares MSCI Philippines ETF as seeking “to track the investment results of a broad-based index composed of Philippine equities”.

The EPHE is NOT the Phisix.

Unlike the elite 30 of the Phisix, the EPHE represents a constituent of 44 Philippine equities, 25 of which are PSEi components. EPHE includes non PSEi 30 issues such as DNL, BLOOM, MRP, DD, VLL, MWC, CEB, COSCO, CHP, FLI, LPZ, FPH, CNPF, X, NIKL, PLC, RCB and ABSP. It has a cash account BLKFDS which serves as the 44th component. And excluded from the EPHE are PSEi issues MER, SMC, SCC, PGOLD and LTG.

The EPHE is listed on the NYSE and denominated in USD.

The EPHE’s top 5 issues with their attendant share weightings are Ayala Land (9.53%), SMPH (9.25%), BDO (7.5%), JGS (7.13%) and Ayala Corp (6.68%). Strikingly, SM ranked only sixth with 5.91% share.

The top 5 issues account for 40.09% share of the ETF’s basket

On the other hand, the top 5 PSEi issues are SM (11.1%), SMPH (8.49%), ALI (8.42%), BDO (6.39%) and JGS (6.17%). The top 5 issues of the PSEi 30 have a 40.57% share of the index.

From a chart perspective, both the PSEi and the EPHE has shown serial accounts of vertical prices as manifested through the rising wedge formation.

Unlike the PSEi where a new record beckons, the EPHE’s present vertical actions have severely lagged the 2015 and 2016 peers.

Unlike the PSEi’s ascending triangle, EPHE offers an opposite outlook, a bearish descending triangle.

Even more, though the differences in market share weights have also been a factor, diminishing returns appears to have plagued the EPHE mainly from the weakening peso and the inclusion of a relatively broader number of firms.

It would take a combined massive rally in the peso and at least Phisix 8,500 for the EPHE to reach its old high

Just look at how the Phisix 8,000 level was reached last week.

 

Because SM, SMPH and ALI have a combined 28.02% market weight share, their staggering gains for the week, specifically 3.97%, 3.7% and 1.45% respectively, contributed to about an astronomical 80% share of the week’s 1.04% output!!!

If PLDT and ICTSI would be included, the share of combined contributions rockets vastly above 100%! Losses on the rest diminish their gains.

The Phisix catapulted higher this week, but losses dominated the broader based components: decliners outclassed advancers 16 to 13 with one unchanged!

Considering the explosive price volatility, the average gain by the Phisix was only .31%!!!!

Speaking of price instability, 14 of the 30 issues or 47% had price changes of at least 2%. And price changes of at least 3% were recorded in 6 issues or 20% of the PSEi. Remarkable!

 

Because of the mechanical pumping on the Sy group of companies, SM + SMPH’s share of the PSEi has rocketed to the highest level at 19.6%. The share of the trio (including BDO) has surged to stunning 25.99% of the PSEi 30. (see upper pane)

In other words, Phisix 8,000 has become acutely, if not entirely dependent on the sustained vertical pumping of top 5 issues, in particular, the Sy-owned group.

The Philippine Stock Exchange updated its Price Earnings Ratio (PER) last week to incorporate 2016 eps.

The average PER of the Phisix as of June 9 was at 20.48, which resonates with the EPHE PER at 20.43 as of June 8.

Yet the market weighted PER for the Phisix rockets to 25.35! That’s because of the clustering of the priciest securities at the top 5 which comprise 54.65% of index PER! (see lower pane)

Because of the prevailing bias, this clearly shows how prices have only become the sole factor for the Philippine Stock Exchange. This is especially true for those manipulating the Phisix higher via synchronized relentless pumping of the top 5 issues (or mostly on the Sy-group)

As it stands, the near record PSEi signifies a mirage, a function of brazen and rampant manipulation and is UNSUSTAINABLE.

How PSEi 8,000 was Attained June 7 Edition!

Here is a question: if the Phisix is truly in a healthy bullmarket then just why the need for urgency (VERTICAL price actions) and manipulations (END SESSION pumps)?

 

The said actions had been quite obvious in the day’s session.

There had been synchronized pumping actions directed at the top 3 namely SM (+3.72%), ALI (+3.07%) and SMPH (+.58%) which was apparently designed to offset JGS (-2.56%) that delivered about EIGHTY SIX(86.2%) percent of the day’s .62% gains!!!!!

 

And for the PSEi, FORTY SIX percent of the day’s gains had been carved by mark the close pump!

All mainstream sectors were involved except the services!

Today’s gains would have EXCEEDED one percent or would have reached the 8,020 level had not been for some issues that were ‘dumped’ (lower right window)

The % share of gains from the end session pump in today’s output per issue: SM 37.6%, ALI 16.3%, SMPH 76% and BPI’s resurrection from -.19% to close at 1.23% due to a stunning 1.4% magic!

This is the Philippine stock market price fixing mechanism!

Some people must be so very very very desperate to see a new high!

Caveat emptor!

How PSEi 8,000 was Attained in Charts!

Hurrah, The PSEi hit 8,000 today!

How was it accomplished? Well, the usual: an engineered pump on 7 of the biggest market cap!

Proof?

 

50% of today’s gains were due to the Sy companies backed by JGS!

It’s getting much wilder…

Now for the charts…

The top 5…

 

BW-SSO here we come!

The next 5… 

 

The final 5 for the first 15… 

 

Chart of the Day: The Tightening Correlation between the Philippine Peso and the Chinese Yuan

The Chinese yuan (+.6%) and the Philippine peso (+.4%) were the two biggest Asian currency gainers for the week. 

 

The interesting part has been the appearance of a tightening correlation between the two currencies since 2014. Although correlation may not be causation, perhaps there may be some developing linkages between the two for such correlation to have been reinforced.

That said, the yuan factor, or the reported change in the yuan’s fixing mechanism along with the PBOC’s massive intervention in the market that fell the USD yuan (blue), may have been driven the Philippine peso’s rally (USD php plunge in orange) more than the assumed link from domestic developments.