MY TWO CENTS: Tax reform and building the “robust middle class”

“The reform package will end decades of unjust taxation that polarized wealth rather than distributed it. It will help us build a robust middle class to ensure stability and sustainability in our nation’s progress,” declared Finance Secretary Carlos Dominguez in a tax forum streamed live to the world.

Why this bold assertion matters is simple: A nation with a high number of poor citizens cannot sustain a strong base of consumers that will buy locally produced goods and services. Without people to buy your products, you can kiss your employment generating investments goodbye.

Consider this: our poverty levels have remained generally the same at about 23% as when PNOY took office in 2010. Any improvement is therefore marginal and insignificant. The lack of equality was pointed out by many international donors and rating agencies as a dark spot as the past government wound up its term in 2016.

Compared with our immediate ASEAN neighbors, the picture is even more damning: Indonesia’s poverty levels are at 12%, Malaysia at 2%. Singapore’s is, well, below 1%. We cannot claim to have stronger economies than them if our poverty levels remain this high.

In this country, wealth has been concentrated in the hands of the same classes and families for too long. Its effects on stifling growth are clear. Economic growth cannot be sustained without increasing equality.

Thus, inequality is not just a political concern, it is an economic question. What is political is the matter of how inequality can be reduced. It is therefore the role of the state to assure income equality over time.

The State has the power to tax and revise systems of taxation when these are unable to serve the purpose of funding important state expenditures that create opportunity and fight inequality.

It has the duty of plugging loopholes and exceptions that only make administration more complicated and difficult. These inconsistencies also make a tax system less just, allowing tax cheats to proliferate.

This is the reality which the Comprehensive Tax Reform Program (CTRP), in the Tax Reform for Acceleration and Inclusion Act (TRAIN), which was approved by an overwhelming majority of the House of Representatives as House Bill 5636 is being proposed and explained.

The proposed TRAIN, he said, will also end the country’s complex tax system that has become vulnerable to evasion and leakages by transforming it into a “simple, just and efficient” structure. This makes paying taxes more acceptable to a bigger number. As this happens, more people will pay the right taxes.

With this, it is hoped that as inquality is reduced, and like our more affluent ASEAN neighbors, a new “robust” middle class will emerge, one that will sustain growth, and power our development.

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