A PLAN TO TAX the super-rich could lead to aggressive tax avoidance schemes and drive investment out of the country, according to the Department of Finance (DoF).
In a letter to House Speaker Lord Allan Jay Q. Velasco, Finance Secretary Carlos G. Dominguez III said the proposal is unlikely to boost government revenue.
“While this wealth tax could initially lead to gains in tax collections, it could, at the same time, discourage growth and investments in the long haul,” the agency said in a separate statement at the weekend.
House Bill 10253 or the proposed Super-Rich Tax Act of 2021 will impose a tax of 1-3% on rich people.
Under the bill filed by a minority bloc at the House of Representatives, the tax would be used to fund for medical assistance, education, employment, social protection and housing for the poor.
The DoF estimated the bill would generate P57.6 billion in revenue each year, while some congressmen said the government could collect P236.7 billion from just 50 of the country’s richest.
But the agency said lost investments caused by the tax would cut the country’s revenue in the long run and reduce new jobs.
“There is a risk of capital flight if the wealth tax is passed in the Philippines,” Mr. Dominguez said.
Only four countries continue to implement the wealth tax — Belgium, Norway, Spain and Switzerland, he said.
“Many countries that had wealth taxes before ended up repealing the said measures particularly because of the increased capital mobility and access to tax havens in other countries,” he added.
Think tank IBON Foundation said the measure would generate P467.1 billion from 2,919 people who have taxable assets exceeding P1 billion. These super-rich account for 0.003% of the population and control 16% of the country’s wealth, it said.
This estimated revenue could fund P10,000 in emergency aid to 18.6 million poor households, subsidies for micro, small and medium enterprises to support a daily wage increase of P100 for three months and hiring additional health workers.
Nongovernment organization Freedom from Debt Coalition has been pushing for a wealth tax to finance the country’s COVID-19 pandemic response. It said candidates for the national elections should pledge that social development will take up a bigger portion of the country’s budget than debt payments.
Meanwhile, Mr. Dominguez said the proposed tax would discourage businesses from taking on riskier ventures that could benefit the public.
They will be subject to tax liabilities on the high capital value of their assets while they generate low profits at the start of operations, he said.
“Wealth taxes fail to significantly promote economic equality or create additional fiscal space,” the Finance chief said. “Moreover, net wealth taxes often failed to meet their redistributive goals as a result of their narrow tax bases, tax avoidance and tax evasion.”
He also expressed concerns about enforcement, citing the need to relax the Bank Secrecy Law and develop exchange of information agreements with other countries to assess wealth in the absence of a reliable database identifying the country’s richest. — Jenina P. Ibañez