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Rethinking the taxation of compensation income in the Philippines

Philippine Review of Economics

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Title Rethinking the taxation of compensation income in the Philippines
 
Creator Quimbo, Stella; University of the Philippines School of Economics
Javier, Xylee; University of the Philippines School of Economics
 
Subject income tax, tax compliance, equity
 
Description The current individual income taxation structure of the Philippines significantly violates several norms of equity, with wage and salary workers (wsws) being disproportionately burdened by income taxes. An important source of inequity is the phenomenon of “bracket creep” resulting from the failure to adjust tax brackets by inflation. Another is the failure of a large number of the self-employed to pay the right taxes. We show that while inflation-adjustment of tax brackets results in revenue losses, an expansion of the tax base, a simplification of the income tax structure, and a reduction of tax rates can plug this leak. Using data from the merged 2013 Labor Force Survey and 2012 Family Income and Expenditures Survey, we estimate a set of tax rates that largely offsets the revenue losses from inflation-adjusted tax brackets. A key behavioral premise, supported by a multivariate logit analysis, is that the likelihood of paying income taxes increases with lower effective tax rates. Under the personal income tax structure proposed here, 36 percent of the income tax burden would be borne by the 2 top tax brackets—a seven percentage-point increase over the current share. Implementing these tax reforms, however, requires improvements in tax administration to accommodate the potential expansion in the tax base. JEL classification: H24, H26, D63
 
Publisher Philippine Review of Economics
 
Contributor —
 
Date 2015-06-22
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.econ.upd.edu.ph/pre/index.php/pre/article/view/914
 
Source Philippine Review of Economics; Vol 52, No 1 (2015); 1-22
1655-1516
 
Language eng
 
Relation http://www.econ.upd.edu.ph/pre/index.php/pre/article/view/914/814
 
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