Taxes no more

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Finance Secretary Ralph Recto earlier announced plans to increase the rates for capital gains, donor and estate taxes to 10 percent from the present six percent

The planned increase is part of the Government Revenues Optimization through Wealth Tax Harmonization or GROWTH Bill, which in turn is part of the comprehensive tax reform package that aims to simplify the country’s tax system.

According to Recto, the increase can generate about P300 billion from 2025 to 2030.

He believes that this will not affect the masses, since it is not consumption-based but is instead a financial tax.

As explained by the Bureau of Internal Revenue (BIR), capital gains tax (CGT) is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale.

If the real estate is a capital asset, or one that is not used in trade or business or held for sale in the ordinary course of business, the transaction is subject to a CGT of six percent of the gross selling price or current fair market value, whichever is higher. This tax is on top of the local government transfer tax of 0.5 percent if located in the provinces and 0.75 percent if located within Metro Manila – based on the total consideration for the acquisition or current fair market value, whichever is higher.

Donor’s tax, meanwhile, is a tax on a donation or gift and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer.

Estate tax is a tax on the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries at the time of death, and on certain transfers which are made by law as equivalent to a testamentary disposition.

The Management Association of the Philippines (MAP) has already warned that the proposed bill will penalize responsible financial planning and discourage the accumulation of generational wealth. The group has sent a letter to President Marcos seeking a moratorium on new tax increases until a comprehensive audit of government expenditures is conducted alongside a substantial reduction in the state’s expenses.

The rates of donor’s and estate taxes were earlier reduced by Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN), which took effect in 2018. The reduction in estate tax rates was aimed at helping Filipinos settle their estate tax obligations and free properties for development, while the donor’s tax was reduced to simplify and avoid arbitrage.

Why increase it now? It’s because raising taxes is the easiest way to increase revenues in the short term, without regard to its detrimental effect on the people and the economy in the long term.

Malaysia, Indonesia and Singapore do not impose estate or inheritance taxes or donor’s taxes. There are also no CGT in Singapore, which abolished estate duty for deaths occurring on or after Feb. 15, 2008. It also does not impose a gift tax.

As it is right now, individual taxpayers are already being penalized with an income tax rate of 35 percent, which is much higher than that imposed on corporations at 25 percent. Imposing higher inheritance taxes will definitely be an additional burden.

Acclime Singapore, in an article, noted that Singapore stands out from many other economies for not having a traditional CGT system – a distinction which creates a significant advantage for investors and entrepreneurs.

CGT is imposed on profits from the sale of capital assets like investment property, stocks, bonds and real estate. However, the gains may be considered taxable income if the main purpose of buying and selling these capital assets is to make a profit.

Singapore also has a safe harbor rule that exempts companies from CGT on the sale of ordinary shares, provided they meet specific criteria such as holding a minimum percentage of shares for a certain period.

Other countries that have no capital gains taxes include Switzerland, the Cayman Islands, Monaco, New Zealand, Belize and Hong Kong, making these countries attractive to investors and entrepreneurs.

Meanwhile, countries with no inheritance tax are Brunei, China (transfer fee is owed when transferring real estate on death), India, United Arab Emirates, Qatar, Saudi Arabia, Kuwait, Hong Kong, Taiwan (there may be an estate tax of 10 percent for assets over TWD 12 million), Macao, Israel, Singapore, New Zealand, Mexico, South Korea, Canada and Australia, to name a few.

Those without gift taxes include Argentina, Australia, Austria, Canada, Cyprus and New Zealand.

They all believe that not taxing their people so much means more money in the pockets of citizens, which can be spent to buy more local goods and services.

In the Philippines, gratuity comes at a cost.

Why our government continues to burden its people by increasing taxes just to raise revenues escapes me.

If we can just improve our tax collection efficiency, reduce tax leakages, impose and collect the correct duties, reduce unnecessary government expenses and require public servants to lead modest lives, then maybe we do not need to increase taxes or create new ones. Maybe MAP is on the right track in suggesting a comprehensive audit of government expenses.

Baguio Mayor Benjie Magalong earlier said that politicians get as much as 40 percent kickback from infrastructure projects, and with the implementing agencies also receiving their own cuts, around 35 percent of the project cost is left for the actual implementation. He added that 20 percent of the total taxes paid by Filipinos go into someone else’s pocket.

A former government official also said that contracts with the Philippine government are usually overpriced by at least 20 percent to facilitate kickbacks.

Many politicians are spending millions of pesos for their campaigns only to recover their investments by way of kickbacks from government projects.

If our government can just plug even one percent of these leakages — both in terms of revenue generation and expenditures — then there will be no need to raise taxes and make the Filipino people pay for its ineptitude.

The government’s plan to increase tax rates is like squeezing blood from a turnip. Let’s give the people a break.

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