I was one of your attendees during your Income Tax 101 Seminar held in Makati and I thank you for your advocacy to help small time businessmen like us by providing affordable seminars. I admire your team's dedication to your advocacy of erradicating poverty in the Philippines through financial literacy.
During the introduction part, I heard that Mr. Mark Fernandez was invited by the Senate to discuss about Estate Taxes. He also gave his opinion saying that the proposed tax changes may increase wealth inequality and may create more poor people. I would like to clarify this.
So my question is, will the proposed tax changes by the Duterte administration reduce the poverty gap? Or will it create more poor people? I am just confused because the news and the media says that the proposed tax changes will be good for the Filipino people.
Thank you and more power. I hope to attend more of your seminars.
Thank you for your patronage to our seminars and for your encouraging words. Rest assured that we will continue to spread our advocacy to more Filipinos in need. My answer to this question is merely an opinion based on how I see the proposed tax changes. Others may disagree but here is my humble opinion:
First, let us identify what are the proposed tax changes:
1. Plan to reduce personal income tax (taxes paid on money that individuals and sole proprietors earn.)
2. Increase excise taxes (taxes paid on some items that we buy)
3. Reduce estate tax (taxes paid upon death)
With the proposed changes the minimum amount of income per year needed for you to be taxed will now be increased to P150,000 per year or P250,000 per year. This is would be good since this means lesser taxes to be paid and more take home pay.
However, this will be bad for the minimum wage earners because they themselves will not be benefiting since they are exempt from paying taxes. Thus the proposed reduction in income tax will benefit the upper and middle class but not the lower class.
Second, let's look at the proposed excise tax increase on - automobile, sugar, fuel and LPG. This would mean more expensive cars, higher transpo cost, more expensive food and beverages with sugar and other ripple effects due to higher oil prices. Thus the proposed increase in excise tax will not benefit the upper, middle and lower class.
Now, let's look at the proposed reduction in Estate Tax. This means that amount of taxes that the heirs will pay from the inheritance they receive will be reduce from 20% to 6%. The proposed reduction in Estate Tax will greatly benefit the upper class.
So in summary, the proposed tax changes will benefit the following:
Upper class - Will benefit from lower Estate Tax and Income Tax but will pay more Excise Tax
Middle class - Will benefit from lower Income Tax but will pay more Excise Tax
Lower class - Will not benefit at all from the proposed tax changes. No benefit due to lower Estate Tax, lower Income Tax and higher Estate Tax
If you belong to the upper class, then the proposed tax changes will be good for you. Your heirs will be paying lesser Estate Taxes from 20% to 6% on the inheritance they receive.
Minimal to no effect for the middle class because despite the reduction in income tax, the prices of commodities will be expensive due to excise tax.
The hardest that will be hit are the minimum wage earners. They will not benefit from a reduced income tax, a reduced estate tax and will be paying more for prices of commodities and transportation.
Hopefully this sheds some light to your question. This is just my humble opinion, I'm sure the Department of Finance, our honorable senators and congressmen have their own reasons why. Feel free to comment below and let me know your thoughts too.
Mark Joseph T. Fernandez, CPA, RFC, AFA, AWP, AEP
Founder of FinancePH
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