Anyone who earns an income works for himself or family. Anyone who pays tax works for the government – or differently stated, works for the common good. If a tax burden on a taxpayer is for the common good, it is an answer that begs the question: What exactly is the common good?
I ask this question in light of the proposal in the forthcoming TRAIN 2 (Package 2 of the Tax Reform for Acceleration and Inclusion law) to tax proprietary schools and hospitals like ordinary corporations. Their income tax rate will be tripled from 10 percent to 30 percent.
My readers should know that the proprietary schools and hospitals that are currently subject to the lower 10 percent tax are privately owned, but they are non-profit. In other words, they are not allowed to give dividends to their owners, under their charter and under the law.
With the lower tax, hospitals are able to modernize facilities, update medical equipment, pay good doctors and people, as well as have a chest to expand their operations and build new hospitals.
People complain that medical services in private hospitals are pricey. But that is also a mechanism to sustain the charity part of their operations as well as defray huge bad debts incurred by financially incapable patients.
Just to be clear, the government does not only “subsidize” hospitals through the lower tax rates because they do charity work. It is largely because of a much-needed partnership between the government and the private sector to make medical services available to our people. Medical services is one of the most important mandates of government. While no law need be written about it, our Constitution even expressly included the mandate that “the State shall protect and promote the right to health of the people.”
Government cannot fulfill this mandate on its own, and while it never would, it is not expected to. Based on Philhealth numbers, there are currently about 1,140 private hospitals working side by side with a smaller number of approximately 760 public hospitals. Note that public hospitals are not free for everybody. They also charge fees to sustain their operations, and thus, they do not entirely use taxes as fuel.
Education is just as much as, if not an even more important government function. In fact, for non-profit and non-stock educational institutions, there is a constitutionally provided full tax exemption – the one that one congressman threatens to take away via constitutional amendment.
There are much more public schools than private, although private colleges account for more than a third of the number. The only way for the government to keep its Constitutional mandate of “(giving) priority to education... (to) promote total human liberation and development” is to continue its partnership with the private sector. Much reminder can be gained from John F. Kennedy who said, “Our progress as a nation can be no swifter than our progress in education. The human mind is our fundamental resource.”
So back to the question: What is the greater good? If government increases the tax burden on these public welfare institutions to three times at that, they will be passed on as additional hospital bills and tuition fees, and this time, it will be substantial and it will really hurt. It is not true that only the rich avail the services of private schools and hospitals. The much bigger middle class and the poor avail them too. If these people cannot afford the new rates of hospital bills and tuition fees, they could crowd public hospitals and public schools and engage the poor and the rest in a battle for space: for a bed in a room, or a seat in a class.
And for private hospitals and schools, would they still engage in, or can they afford, as much charity if they pay full taxes like the rest?
What should be realized is that medical bills can debilitate a family in the middle class. And Filipino parents will endure the sacrifice here or abroad to send their children to school because education is their children’s only valuable inheritance.
What is the worth of new roads and bridges without a strong-bodied population? What good is building more if we do not build knowledge and character? Sometimes individual benefit and the common good do not match. However, in the narrative of maintaining the partnership vs. tax burdening these social institutions, what is good for the individual is good for all.
Access to medical services and education are rights, and not merely privileges. For any politician who disagrees, we dare them to say it out loud.
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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of the Tax Committee, and the vice chairman of EMERGE (Educated Marginalized Entrepreneurs Resource Generation) program, of the Management Association of the Philippines (MAP). Email your comments and questions to aseasyasABC@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.