Special Report: Filipinos facing reality of tax burden

First of two parts

 

Taxes weighed heavily on the decision of Fidel Diaz to uproot his family from Manila and migrate to the United Arab Emirates. He had already built a solid career in the local oil industry when he reached this crossroad.

 

“If our tax system were different, I would have thought twice about leaving,” said Diaz, now an account manager at a major petroleum company in Dubai for about a year now.

 

Diaz, a father of three, swallowed this bitter pill even though his educational and professional background already positioned him a step ahead of the larger job market in the Philippines. He holds a bachelor’s degree in Geodetic Engineering from the University of the Philippines Diliman, and a master’s degree in Business Administration from the Ateneo de Manila University. He also worked as a science research specialist at the Department of Energy and handled accounts for private energy companies.

 

These days, Diaz has been receiving his salary in full. The government in Dubai does not deduct taxes from individual wage earners, and even provides government allowances for housing and education. 

 

 “I think the current tax system burdens the population. In our (Filipino) society, the rich get richer. We have a strong middle class, but they are the ones who bear the burden of taxes,” Diaz said in a phone interview with the Special Assignments Team of GMA News.

 

Diaz thinks the added financial strain caused by taxes impacts the life decisions of many Filipinos. “Most of us in the Philippines who are having difficulties in dealing with this decide to leave the country,” he said.

 

Homecoming

 

While Diaz moves on to a new chapter abroad, erstwhile Singapore-based executive Aileen Arao is taking her chances back in the Philippines. 

 

She and her family are adapting to life in the Philippines after being away for 20 years, but the higher tax rates need some getting used to. 

 

“Of course, we have to make adjustments and undergo a lot of difficulties. On top of our bills and house rental, we have to pay taxes every month. What should have been our income is being remitted to the government as taxes,” said Arao, who has set up small local businesses following her return. She has tempered business expansions plans in light of the taxes.

 

Compared to other member-countries in the Association of Southeast Asian Nations (Asean), the Philippines has the second highest marginal tax rates whereas Singapore has the lowest.

 

Source: KPMG and Trading Economics websites, 2014

 

For example, a salary of Php 500,000 a year (less than Php 38,462 monthly, including 13th month pay) would already put a wage earner in the Philippines at the highest tax rate of 32 percent. 

 

The same paycheck in Singapore (equivalent to SG $1,078 a month) would not even be taxed at all. Taxes in the Lion State are charged starting at the $20,000 annual income level (or a monthly income of $1,538, including 13th month pay) at a tax rate of only two percent.

 

Source: KPMG and Trading Economics websites, 2014

Note: KPMG did not have info on tax rates in the following Asian countries: Afghanistan, Bahrain, Bhutan, Brunei, East Timor, Iran, Iraq, Korea North, Kyrgyzstan, Lebanon, Maldives, Nepal, Oman, Qatar, Syria, Tajikistan, Turkmenistan, and Uzbekistan.

 

In Asia, the Philippines ranks 10th in terms of highest income tax rates at 32 percent.

Arao sees nothing wrong with paying taxes, but added that tax reforms in the Philippines should be implemented. 

 

Source: KPMG and Trading Economics websites, 2014
Note: KPMG did not have info on tax rates in the following countries: Afghanistan, Bahrain, Bermuda, Bonaire and Saint Eustatius and Saba, Cayman Islands, Ecuador, Fiji, Gibraltar, Isle of Man, Jamaica, Lebanon, Malawi, Mauritius, Mozambique, Netherlands Antilles, Oman, Palestinian territory, Panama, Paraguay, Qatar, Samoa, Senegal, Sierra Leone, Sudan, Swaziland, Syria, Tanzania, Tunisia and Zimbabwe.

“I think that as long as people earn their money, they’re OK to pay taxes. You earn your living. You also have to pay the government what is due to the government, but the right tax structure must be in place,” she said.

 

Rude awakening

 

Meanwhile, 21-year-old call center agent Myra “Mhai” Cabujat has just started her journey as a bona fide taxpayer. She quickly learns, however, how difficult this experience is.

 

Cabujat always counts the days until her next paycheck, juggling the demands of work and the academe as a journalism student at the University of the Philippines Diliman.

 

Taking a huge toll, however, are the bills and medication of her parents who are unemployed due to their health condition.

 

Every month, her entry-level salary of Php 21,000 is deducted Php 3,000 due to taxes.

 

“It’s too much. It’s really too much. For instance, that Php 3,000 can already buy a lot of things. You can add it to your monthly budget or your budget for food. You can also use that to increase your savings,” she said.

 

Rina Manuel, president of the Tax Management Association of the Philippines (TMAP), has a similar view: "Money that could have been used to pay for various needs are reduced by additional taxes, simply because tax brackets have yet to be adjusted."

 

Filipinos in the lower and the middle income tax brackets, Manuel said, are the ones who are at the greatest disadvantage.

 

If she had her way, Cabujat would like taxes to be lower in the Philippines. “Even a thousand-peso deduction is a big deal. Once you start working, every centavo counts,” Cabujat said. — JST, GMA News