OFWs should pay income tax

I thought all along that OFWs pay income tax but at a really low rate of three percent. I have just been told that they are paying no income tax at all. A law passed during the Ramos watch totally exempted OFWs from paying any income tax at all. I think there is something wrong here.

I realize that OFWs are our modern heroes and all. Without them and the foreign exchange they send home, we’d be in worse economic shape. But it seems to me that exempting them from income tax is the wrong way of recognizing their positive contribution to the motherland. We may even be depriving them of the opportunity to be complete heroes by helping out where they are most needed now.

Let us look at it this way. The biggest problem of government today is the yawning budget deficit. They can scrimp and implement all the creative austerity measures they can think of but they will still not be able to raise the public funds needed to carry out all the poverty alleviation measures needed today.

Only 2.5 million out of 75 million Filipinos file an income tax return and an even less number actually pay anything. There are over five million OFWs. Imagine the boost the National Treasury can get if they all filed and paid even a token three percent of net income after deducting foreign income tax paid.

The other point we should consider is that government is also spending real money from the Treasury in servicing their needs abroad. While OFWs contribute to OWWA, there are also other services rendered by the consular and diplomatic staff of the DFA that must be funded. Right now, it is the Filipinos back home like you and me who are paying for those services with our drastically depreciated peso. Is that fair?

Maybe Congress may want to exempt those who are earning $300 a month or less, but even this is questionable. As a principle every Filipino must carry his or her share of the burden of government. There are many more, specially those working on IT and other high value services abroad who can afford to pay taxes.

Let them not say that they get lousy service from Filipino government officials abroad, to justify their tax free status. We get lousy service here too, but we pay income tax and all the indirect taxes built in into taxes on everything we buy here, anyway.

I have always supported OFW rights in this column and had in fact been an early advocate of their right to vote. But fair is fair. They want the right to vote, they must also have the responsibility of paying for the upkeep of those they are voting into office. They can’t just get a free ride.

I hope the tax reform program of President GMA will look into the need to have OFWs pay income tax. We simply have to widen our tax base. I am sure there will be a lot of politicians trying to get brownie points by advocating the current tax free status of OFWs. But unless every Filipino, wherever he or she might be, help carry the heavy burden of government today, we might as well give up on this country. After all is said and done, we need cash to run our government and its social services to the less fortunate.

Currency control

I think President GMA was just getting a little too piqued about the exchange rate when she thought aloud about currency control. She clearly didn’t mean to impose it anytime soon, and this she said so herself in her press conference in Davao as soon as she arrived from Malaysia. The fact that her Finance Secretary was also strongly opposed to it is also an indication that it had not been adopted as a policy or a strategy of this administration.

But the stock market reacted anyway with the little that foreigners have being sold down, as a knee jerk response. The currency market, on the other hand, improved, as if cowed by the President’s threat to implement a tough new approach. Or maybe Paeng’s imposition of fines and a threat to suspend bank officials are taking hold. We are glad Paeng took our advice in this column to "just do it."

Two things go against our adopting currency controls at this point. The first is that unlike Malaysia in 1997, we have substantial foreign debt. The Malaysian government was practically free of foreign debt.

Secondly, Malaysia also has dollar earning petroleum exports, a constant source of foreign exchange that could be used to defend the exchange rate. Our international reserves are puny for such a serious exercise and we are at the mercy of the banks.

Hong Kong can afford to peg its currency because they have the muscle to defend it, as they showed in 1997. On the other hand is Argentina. It pegged its currency to the dollar, despite its wobbly economic fundamentals. It is obvious we are more Argentina than Hong Kong.

Also, Malaysia has the Internal Security Act and we are an unfettered democracy. That makes a lot of difference in implementing a restrictive policy such as currency control.

The other important consideration that President GMA forgot is that when a country imposes exchange control, it is done suddenly. They do not announce it prematurely, thereby giving the speculators time to reposition their holdings and re-strategize. The Presidential musing will only make investors think twice about coming here and those already here will make contingency plans or activate such contingency plans that will take their deposits out of our FCDU and local banking system. That further reduces the muscle offered by our secondary reserves, whose past role in stabilizing the peso is already to be compromised by the proposed doubling of withholding tax.

The moral lesson of the story is, the President of the Republic does not have the luxury of thinking aloud. Anything that comes out of her mouth becomes public policy, somehow. And it might have even been totally unnecessary for her to make that currency control threat, at all.

Actually, all President GMA has to do to stop speculation on the peso is to invite the principal stockholders (mostly but not exclusively Filipino-Chinese) of some of the major local banks to dinner at Malacañang. She will then read them the riot act. That should scare the sh-t out of them and good behavior should follow. Or if that does not happen, she should carry out the threat of hellfire on one of them and that should do it.

In other words, President GMA should speak softly but carry a very large stick. That will earn her respect and confidence more than the empty threat of imposing currency control.

Not interested

Dr. Ernie Espiritu e-mailed this contribution for today.

After four years of separation, a couple finally divorced amicably. The man wanted to date again, but he had no idea of how to start, so he decided to look in the personals column of the local newspaper. After reading through all the listings, he circled three that seemed possible in terms of age and interest, but he put off calling them.

Two days later, there was a message on his answering machine from his ex-wife. "I came over to your house to borrow some tools today and saw the ads you circled in the paper. Don’t call the one in the second column. It’s me."

(Boo Chanco’s e-mail address is [email protected])