Militant labor groups counter-proposed tax exemption. If granted – a possibility as remote as the passage of a legislated P125/month across the board increase – it would be justice more than 40 years delayed.
Mark Anthony described the wound inflicted on slain Julius Caesar by Brutus, his best friend, as the “unkindest cut of them all”. President Arroyo’s promised executive order is an “unkind cut” on the minimum wage earners – from someone posing as friend of labor.
The order will be to stop withholding tax deduction on pay days. But those — should there be – with taxable income will still be taxed. By the time they have to pay their tax, where to get the money will be a headache. We call that “spend now, bleed you later”
Deducting withholding tax from minimum wage earners is most unkind. That’s depriving them of the money they need very badly. In all probability, when they file their income tax returns the deducted sums would be refundable. And it will take months, if they’re lucky, to get the refunds. The Bureau of Internal Revenue still owes me “tax refunds”.
Why not simply exempt minimum wage earners from paying income tax?
Taxing the income of minimum wage earners is gross injustice that has been suffered by the poor for more than 40 years now. What should be taxed is income in excess of the primary or basic needs of the earner – in the case of a family, the needs of the parents and their dependent children.
Primary or basic needs should be exempted from taxation. Income tax is just if exemptions can satisfy those needs. For social and economic stability, minimum wage and income tax exemptions must be constantly adjusted to cost of living and inflation.
Until 1950, cost of living was very low. Prime commodities and services were priced by the centavos. While prices were not as low as those back in the 1930s when there were articles sold at two for one centavo, common household articles or kitchen needs were still priced by the centavos — usually, five to ten centavos.
Wages – though higher than the 25 to 40 centavos a day or P15 to P30 a month in the 1930s – the minimum was 60 centavos a day. I supported myself through college from 1952 to 1955 with a P102-monthly salary. The P1,000-tax exemption per dependent child – almost enough for basic needs including education — regardless of number of children made even the middle-income earners free of income tax.
From the 1950s through the 1960s cost of living went up fast. For instance, rice that sold at P0.25 per ganta in 1950 rose to P0.40 by 1960. One ganta of rice weighs more than two kilos. When in the 1970s, price crisis loomed because of rice shortage, the price was stabilized at the prevailing P1.20 – P1.20 per kilo, no longer per ganta.
While cost of living had been on the run and wages doubled and later tripled, tax exemption remained at P1,000 per dependent child through the 1960s. Families earning below cost of living had to pay income tax, a sacrifice for them.
Now, the tax exemption for the head of the family is P32,000. Will that be enough for him and his wife if she is not earning? For each of the four dependent children, P8,000. Will that be enough for one child? Children in the excess of four enjoy no exemption.
Even if tax deductions were stopped and the minimum wage earner has nothing to pay when he files his income tax return, that’s only partial justice long delayed – and still denied since the exemptions are much below the costs of primary and basic needs.
The real injustice is not in the tax deductions but in the tax exemptions. To be just, not only minimum wage earners but all whose income is below cost of living should be tax- exempt by raising income tax exemptions realistically. Unless this is done, a good part of small wage increase would go to income tax.
Sen. Ralph Recto proposes that families with both husband and wife earning P288,000 or lower a year should be tax exempt. That is P12,000 per spouse per month. If the present P360-minimum daily wage in Metro Manila is increased by P125 – what militant labor has been demanding – that will amount to P12,610 monthly.
What is the realistic tax exemption for the family and ALL dependent children – when both or only one of the spouses is earning? The Marcos decree limiting the exemption to four children should be repealed. Why punish a child for being born?
What is the realistic tax exemption for a single family provider? Will he or she just be considered single with dependents? What is the realistic tax exemption for a single earner without dependent?
Congress should determine the realistic exemptions and pass the necessary law which at the same time will provide for adjustment to changing cost of living and inflation. While this is justice long delayed, it will be redress worth the waiting. President Arroyo should certify this as an urgent bill to the 14th Congress to show her sincerity.
The government will lose revenue since many of the middle-income earners will be exempted. But maybe, it would not be very much. Most of the minimum wage earners, if not all, are already not paying income taxes.
Whatever is lost from the lower middle-income earners can be compensated by raising rates for taxable income. With realistic income tax exemptions, taxable income is in excess of what the income earner needs primarily for his family and his dependents. Paying a higher tax on this will not hurt.
The money that tax-exempt workers would otherwise pay to the government may lead to better socioeconomic life. In the process, they pay VAT for the goods and services they buy. And if their families become more productive, they will help generate more taxes.
Creating jobs alone will not eradicate poverty and fuel socioeconomic development. It is paying the workers justly and allowing them to use their income fully for the primary needs of their families that will.
Our low-income earners are legions. For generations, they have been suffering from starving wages and smarting from unjust income taxes. For the government, income given up to redress injustice – even if delayed – is not a loss but an investment in human development.
(“Comment" is Mr. Patricio P. Diaz' column for MindaViews, the opinion section of MindaNews. Mr. Diaz is the recipient of a “Lifetime Achievement Award” from the Titus Brandsma for his "commitment to education and public information to Mindanawons as Journalist, Educator and Peace Advocate." You may e-mail your comments to [email protected]).