It is a case of waking up a sleeping dog. Most depositors routinely ignore such tax deductions because a savings account earns almost nothing. Savings deposits are mostly for safekeeping.
The banks woke up the sleeping dog by sending notices to depositors that they will be deducting an increased withholding tax of 20 percent on interest earned on all deposits. To weary taxpayers, it was too much.
The interest rates in time deposits are barely keeping up with inflation. But interest on money kept in a time deposit for five years and one day was tax-free.
DOF tried to sound populist. They are equalizing daw tax on interests earned from savings and time deposits because it is unfair to those who cannot afford to park their money for five years.
If equalization is the objective, just remove the tax on the interest on savings.
Taxing interest income on deposits is hitting the middle class. Reforming our tax system should aim to protect this thin segment of our society, populated by OFWs and BPO agents among others, who are carrying the burden of growing our economy.
We need a fair system of effectively collecting taxes from those who can afford it. Our government always takes the easy way out.
The tax on interest income on deposits is easy to collect from the banks. Same with the value added tax imposed on every consumer, merchant and self-employed professional. The tax on oil products and electricity is also easy to collect.
Petroleum products are subject to both a specific excise tax (P10 per liter for gasoline and P6 per liter for diesel) and the standard 12 percent VAT. Since VAT is a percentage of the final retail price, every time oil prices increase, it goes up as well.
These consumption taxes are regressive. That means lower-income households pay a higher share of their income compared to higher-income households. And these taxes are unavoidable because these are automatically collected at point of purchase.
On the other hand, the new tax law also provides major tax breaks for capital market participants. These include reductions in stock transaction tax, reducing the cost of investing and making it more attractive to institutional investors to boost liquidity and trading volume.
Those are gifts to the money movers. This belies the DOF’s claim that their hearts are bleeding for the poor. The poor and the near-poor middle class can only afford savings and time deposits. Ka-liit naman. Dapat binalato na.
Yet, when the elite opposes a new tax proposal, the government quickly backs out.
The DOF had proposed raising capital gains, donors and estate taxes from the current six percent to 10 percent. The proposal was quickly formally withdrawn last April after the elite protested.
Taxes are necessary. We will not be so allergic to increasing taxes if we can see that our money is properly used.
As I wrote last Monday, the Nordic countries charge upwards of 50 percent in income and other taxes. But no complaints because people get it all back in terms of education, health care and other social safety net services.
Compared to us, Singapore has lower income tax, lower VAT, no capital gains and inheritance tax. Yet SG delivers better services, world class mass transit, model housing program and health care. Singapore is small but the effort of its government to serve its people is awesome.
It can be done locally. Vico Sotto is doing it in Pasig. He has delivered services like nothing we have seen before. Yet, he still ended with a surplus of a billion pesos at the end of the year because he seriously addressed corruption.
DOF says the issue is low taxes. It’s actually poor governance. A government that fails to properly manage existing resources has no right to ask for more.
An unauthored post circulating online titled, “The Great Filipino Bank Heist” puts it clearly: “It sounds harmless. A 20 percent tax on interest: the quietest raid on your pocket. This isn’t about the rich. It’s about ordinary depositors: nurses, call center agents, teachers, overseas workers — people who live from payroll to payroll but still try to save.”
What do we get for our taxes?
Not classrooms, hospitals, or an efficient bureaucracy.
The modern infrastructure we have, like expressways, are privately built and managed. And we must pay to use them. In other countries, the government builds such infrastructure and citizens use them for free.
COA, in its 2022 DPWH Audit Report, has cast doubt on the necessity and prudence of, for example, the P255-billion in phantom flood control projects…That we had serious floods over the last week proves the budget allocation was just a ruse.
Billions in confidential and intelligence funds for legislators and the president/vice president… with no accountability. Just ask Mary Grace Piattos.
The billions allotted for maintenance & other operating expenses, according to COA, is another gold mine for corrupt officials.
The COA 2023 Audit Observation Memo reports “Ayuda payouts with incomplete master lists and absent proof of distribution — renders accuracy and existence of beneficiaries doubtful.”
The article observed: “You lose money in small drips: P50 here, P200 there— until it becomes billions in the aggregate, quietly bankrolling everything except the national good.”
Joey Salceda gets the problem: “There is bigger political space and public clamor for reform on the expenditure side.
“That means the quality of expenditure and the speed of delivery. That includes fixing procurement, improving agency absorptive capacity and accelerating implementation of big-ticket and PPP pipeline projects.
“If we can’t raise more revenue for now, we need to get more out of what we already spend.”
A concerned taxpayer wrote to Sec. Ralph Recto that he should collect the P203 billion in unpaid estate taxes owed by the Marcos family estate which had been ruled final and executory by the Supreme Court in 1997. Until then, he has no right to impose new taxes.
Oo nga naman. Madlang people lang ang kaya ninyo!
Boo Chanco’s email address is bchanco@gmail.com. Follow him on X @boochanco