LAWMAKERS’ proposal to tax billionaires received mixed reactions from analysts amid opposition by government officials against the measure.
While admitting the proposed wealth tax can lead to revenue gains, the Department of Finance (DOF) is opposing the proposed wealth tax under House Bill 10253; it warned that passing this measure would lead instead to capital flight and “aggressive tax avoidance.”
Under House Bill (HB) 10253, individuals with taxable assets that exceed P1 billion should pay a 1-percent tax while a tax of 2 percent is imposed on taxable assets over P2 billion and 3 percent for over P3 billion.
While the bill’s authors estimate that their proposal will generate P236.7 billion per year, the DOF said it projects a “more conservative” P57.6 billion in revenues. Finance Secretary Carlos G. Dominguez III has said that “losses incurred from other taxes are far more substantial.”
The DOF chief also lamented that implementing the wealth tax will be “costly and complex” since this would require additional manpower. Dominguez said there would also be a need to relax the Bank Secrecy Law and forge exchange of information agreements with other countries to determine the various aspects of a “super-rich” taxpayer’s wealth.
But IBON Foundation Executive Director Jose Enrique A. Africa said just because a wealth tax is complex doesn’t mean that it should not be done.
Africa argued that the growth of wealth among a few billionaires far outpaces the low income and assets of the poorest 70 million Filipinos. He added that modest reductions in the wealth of just around 3,000 billionaires can finance a huge expansion in government services, especially for ordinary Filipinos.
“The government’s job isn’t to do as little as possible but instead to do what needs to be done,” Africa told the BusinessMirror. “The DOF should address the lack of manpower, the laws to be changed and the international cooperation needed instead of lamenting these and avoiding doing the work.”
Moreover, he told the BusinessMirror it would also be better if government studied how to fix tax avoidance rather than being “defeatist” in this regard.
“Instead of retreating to paeans about simplicity, has the DOF considered international efforts to reduce the capacity of the rich to avoid taxes like a global asset registry, public registries of beneficial ownership, and tax transparency reforms? Or maybe exit taxes on net wealth for those who renounce their Filipino citizenship?,” Africa added.
Foundation for Economic Freedom President Calixto V. Chikiamco said the idea of imposing wealth tax is “nice but impractical” given that wealth comes in many forms, such as real estate, stocks, bonds, art, jewelry, bank deposits and even cryptocurrencies.
“How will the government be able to determine that on a global scale? The wealth tax may even lead to capital flight as the rich park their assets in foreign countries outside of the reach of local tax authorities,” Chikiamco told the BusinessMirror.
“We should tax monopoly profits or unearned wealth, but wealth due to risk-taking and innovation should be rewarded, not subject to more taxes,” he added.
Instead of imposing wealth tax, Chikiamco said it would be better to pass Package 3 of the Comprehensive Tax Reform Program (CTRP) to raise revenues and replace the outdated valuation system, which results in low valuations and low tax collection from the soaring price of real estate. Package 3 of the CTRP is also known as the Real Property Valuation Reform bill, a version of which both the Upper and Lower Chambers has.
“It’s essentially a tax on idle real estate since owners have to make the land productive in order to pay the taxes on updated valuations,” Chikiamco told the BusinessMirror.
Ateneo de Manila University John Gokongwei School of Management Dean Luis F. Dumlao believes the government can collect about P75 billion already from imposing a wealth tax on the 10 richest Filipinos on the Forbes list.
However, Dumlao doubts that the proposed measure would lead to aggressive tax avoidance as claimed by DOF.
He also said the proposed tax is a “duplication” of the existing progressive individual income tax and real estate tax.
“An individual with a wealth of P2 billion will be subjected to a P10 million tax or something worth two luxury and/or sports cars. It is doubtful this P2-billion person will emigrate or commit a crime just to avoid P10 million,” Dumlao said.