Fifth On-Line Presidential Forum
The Income Tax and Unemployment in the Philippines
The collection of the Income Tax for almost 100 years, from March 1,1913 until today, and the problem of unemployment is discussed in the Fifth On-Line Presidential Forum.
The discussant BRP, Chairman of the Foundation of Strategic Economics(FSE), claims that the Income Tax collection is one major cause of unemployment .
He explains that the problem of unemployment in the Philippines which causes poor productivity can be addressed if the Income Tax is abolished. For this reason, his first public pronouncement if he gets elected as President in 2010 will be the suspension of the collection of Income Tax by the BIR pending the abolition of the said tax by Congress thru the amendment of the National Tax Code of 1997.
Philippine Challenge: Your formula, the MERCADO FORMULA which is WEG + HIS + BP = SEG, includes BP or Better Productivity as a major factor for a strong and sustainable social and economic growth or SEG. Do you think we have BP or Better Productivity in the Philippines?
Bishop of the Right and the Poor(BRP) : To be candid, No. Definitely not. We have poor productivity compared to our Asian neighbors. It's easy to know if we have Good or Better Productivity by simply looking at our nation's employment rate. Last year(2007), there were more than 4 million unemployed and underemployed Filipinos combined. That's official data. The unofficial data maybe even higher. And our unemployment rate increases each year. When a country is not utilizing a good portion of its labor force in producing goods and services, as shown by its employment rate, then you know that its productivity level is poor.
QUESTION : Why do we have many unemployed Filipinos?
BRP : Well, first, many of our high school graduates don't get college education for one reason or the other. Second reason, even our college graduates find difficulties in job hunting, especially today, because their courses or trainings don't match with the available jobs. Consider the many available jobs in call centers. Most of our college graduates can't speak good English. You can't use Tagalog when you communicate to American BPO clients. Third, we don't have that many jobs offered by existing local and foreign companies operating in the country, with the exception of the BPOs. We can cite other reasons such as poor salaries. Therefore, our college graduates don't have the drive to find local employment. They remain unemployed until they apply for jobs abroad as domestic helpers or laborers.
QUESTION : You are the foremost advocate of the abolition of the Income Tax. Do you think the collection of the Income Tax is a major cause of unemployment?
BRP : Yes, it is. The government is not saying it, but it is.
QUESTION : Why is it a major cause of unemployment?
BRP : First, let's look at the number of individual Income Taxpayers as of this year, 2008. Government datum states that there are more than nine(9) million Income Taxpayers today. By 2010, there will be more than ten(10) million . Let's take just one Income Taxpayer - the teacher. My niece is a high school teacher, and she told me that P2,500 is deducted as withholding tax (Income Tax) from her P12,000 salary every month. How much is the total amount withheld for the Income Tax annually? That's a total of P28,000 every year. From one teacher alone. She goes to school early by taking two rides everyday. She goes home late, taking another two rides. She works hard, but she feels that her industry is not compensated well. So, industry is not well compensated. This is the feeling of almost five hundred thousand teachers(500,000) and school staffs all over the country. Let's go to the withheld tax from the salary of my niece . With that amount, it is possible for her to start a "Rolling Store" and employ one person. A new "Rolling Store" costs just P22,000 or even less. Think of the number of Filipinos that the more than ten(10) million individual Income Taxpayers can employ in various micro businesses once the Income Tax is terminated, even if each taxpayer employs just one person in her small business. Wow! They can employ the more than 4 million unemployed, and wipe out the unemployment problem .
QUESTION : So, the poor income of the Income Taxpayers prevent most of them from being entrepreneurs and employers?
BRP : Exactly. Even if we train them as entrepreneurs, how can they start businesses if they don't have the capital? You want them to borrow from the bank or from the "5/6 operators" to start and sustain their businesses? That's possible. But how many are eager to do so, considering the loans' interests, and the possibility of failure? However, if the government gives up the income Tax as a form of yearly investment to the Income Taxpayers, then the income Taxpayers can use their annual added income to start micro businesses without being worried in paying loans and their corresponding interests. There are two more possible sources of massive employments once the Income Tax is abolished.
QUESTION : What are these two other sources?
BRP : One, the existing commercial and industrial corporations. Two, the foreign investors who may set up their companies here.
QUESTION : They can provide massive employments to Filipinos if the Income Tax is abolished? How?
BRP : Once the Income Tax is abolished, the more than ten (10) million Income Taxpayers in 2010 will have more money to purchase goods and pay for services. The demand for goods and services by more than ten(10) million Income Taxpayers and their families will go up. The existing companies will have to hire more employees to produce more goods to cope with the demand. That's business. If you don't cope with the demand, your competitors will. In fact, new competitors will rise to meet the need. Let's use a coffee company again as an example. Let's say that as of now, one million Filipino families consume one regular bottle of NESCAFE each month. Then, the Income Tax is abolished, and Income Taxpayers will have more money. Instead of drinking "ricecoffee", ten million families want to drink NESCAFE. What will NESTLE do to meet the new demand? Management will look for lands for coffee planting. It will hire coffee planters, tenders, harvesters, processors, and marketers. That's just one coffee company hiring thousands of new workers to meet the new demand.
QUESTION : Alright. What about the foreign investors?
BRP : There are not many foreign investors who desire to put up their commercial or industrial plants in the Philippines for various reasons such as corruption, peace and order, poor incentives, high corporate tax, poor infrastructure, etcetera. One major reason is the low "return on investment" or ROI. It is common sense. If you are the investor, why should you invest in a country where you have low ROI, and considering the high risks, when you can invest in another country where you can have higher ROI ? One major cause of this low ROI of foreign investors in our country is the low income of Filipino consumers compared to other countries. Why low income? Because of the heavy taxes. If you are the investor, will you put up a plant in the Philippines if your products can't be sold that well because many Filipinos can't afford to buy your products? Maybe not. But if your products can be sold well because the Filipino consumers have the money to buy these, then you will not hesitate to put up your plant here and hire Filipino workers. That's business and common sense. The challenge to Filipinos, therefore, is to demand for the abolition of the Income Tax. That's why I am leading the "Stop the Income Tax(SIT) " movement. It is the major cause of low incomes for families and businesses, low spendings, low savings, low employment, low or poor productivity, and therefore, poor social and economic growth.
QUESTION : So, what will you do in 2010?
BRP : I will ask the more than 10 million Income Taxpayers : 'Do you want to continue paying the Income Tax year after year after year after year until you grow old?' And I will also ask the young voters, another 10 million, who are not paying the Income Tax yet : ' When you start working, do you want the government to deduct the withholding taxes from your salaries year after year after year after year until you grow old? Let's wait for their reply. I am eager to hear it myself.
