A shared sense of frustration among Filipinos arises at the sight of skyrocketing prices of goods and services, from the slew of food price increases to fare hikes. While ordinary consumers grapple with the cost of living crisis, as reported by the International Monetary Fund, the world’s richest experience the exact opposite: They continue to amass more wealth, partly by evading taxes.
In 2022, multinational companies shifted USD1 trillion in corporate profits to low-tax countries, resulting in a global loss of almost 10 percent of the corporate tax revenues collected worldwide, according to the Global Tax Evasion Report 2024. This is an increase from 9 percent in 2020, equivalent to around USD169 billion in global tax revenue losses.
Big-time tax evaders remain legally unscathed, despite the costs of their crimes being shouldered by ordinary taxpayers whose services from the government lessen due to reduced coffers. At a time when the cost-of-living crisis worsens, schemes by unaccounted tax evaders serve to further encumber citizens by diminishing the public funds that could have been allocated to social services.
To evade taxation, corporations shift their profits to low-tax countries called tax havens, creating subsidiaries bearing their company’s branding, reported the Tax Justice Network. For a more surreptitious approach, some billionaires create secretive corporations or trusts in tax havens to hide their wealth.
These schemes by the wealthy were uncovered by the 2021 Pandora Papers exposé, a cross-border investigation of journalists on offshore tax evasion. It revealed that 900 individuals and corporations linked to the Philippines hid their wealth in tax havens abroad to cut the costs of paying taxes in the country.
Aside from foreign tax havens, domestic tax laws also enable corporations to evade paying their dues. The wealthy enjoy corporate tax cuts favorable to them but cost the government billions in lost tax revenues.
The Duterte administration railroaded the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law in 2021, which reduced the original 30 percent corporate income tax (CIT) to 25 percent. Since the tax reduction, only 7.7 percent and 7 percent of corporate profits were taxed in 2021 and 2022, respectively, which are the lowest rates in the decade compared to the average of 10.4 percent of corporate income taxed from 2010 to 2020, according to a 2023 paper by the Congressional Policy and Budget Research Department (CPBRD).
Although the Philippines's regular CIT is slightly higher by a few points than the Southeast Asian or American averages, foreign corporations can avail of a minimal five percent CIT by establishing their businesses in one of the country’s 421 special economic zones (SEZs).
As Filipinos lose billions of tax revenues to SEZs and CIT cuts, the government remains defensive of these measures due to these cuts’ purported contribution to employment and economic growth. But the global experience of CIT cuts negligibly contributing to economic growth belie government claims. Reports of indigenous peoples’ displacement during the construction of the Aurora Pacific Economic Zone and labor exploitation in the Cavite Free Trade Zone also debunk government assertions that SEZs will improve the quality of life in local communities.
Devoid of any plans to reverse corporate tax cuts, Marcos Jr.’s administration will only worsen the people’s economic plight with the cost of living crisis by further depriving them of government revenues that could be channeled to their social services.
A tax scheme that allows the evasion of billions in corporate profit feeds into a system that disproportionately favors the rich and overburdens ordinary Filipinos already beleaguered by the cost-of-living crisis.
Filipino families are earning and spending 2 percent and 4.1 percent less, respectively, compared to 2018, according to the 2021 Family Income and Expenditure Survey. With an average of 43 percent of expenditures allotted to food, even slight increases in food prices due to inflation drastically compromise their spending capacity for their other needs.
Amid this cost-of-living crisis, post-COVID recovery measures necessitate urgent government revenues to fund social services and address increasing public debt, read the Global Tax Evasion Report.
Yet social services in the form of social assistance, healthcare, and tertiary education are proposed to incur billions in cuts in the 2024 national budget. These cuts point to a government whose policies “roll back the state to only provide minimalist public goods and services,” according to a 2021 policy note by think-tank IBON Foundation.
Spending on other sectors, such as economic services, is further constrained by higher allocation to debt servicing, said the CPBRD. Debt payment in the 2024 proposed budget amounts to P670.4 billion, higher than last year’s P582.3 billion. The CPBRD also found that the growth of debt burden over the years has been outpacing the growth in the national budget. Slower increases in public coffers relative to debt burden are poised to persist as CIT cuts cause fewer taxes collected from corporations.
To respond to the imperative of raising revenues to pay debt and increase the budget, the government passes the burden to the public. Although government revenues increased over the years, the share of corporate income in total tax collection diminished to 18 percent during 2020-2022 from 25 percent in the 2015-2019 period, while excise and personal income shares increased from 13 and 17 percent to 17 and 19 percent, respectively, in the same period. This trend is set to continue as Marcos Jr. pushes to adopt higher excise tax on sweetened beverages and junk foods, and value-added tax on digital services.
Amid piled up systemic burdens, changes in the tax system and the government’s public spending priorities are in order.
Out With the Old
In the face of a cost-of-living crisis and a tax system arbitrarily engineered to serve the few, there is a need for a government with a stronger commitment to pursue progressive taxation and bigger social services spending over corporate profit.
Mechanisms must be created to collect the tax deficits of multinational companies and billionaires, as recommended by the Global Tax Evasion Report 2024. The report also suggests that the international community must agree on taxing billionaires at a rate of 2 percent of their assets, which will generate governments USD214 billion.
In the Philippines, increased taxation on billionaires was proposed in the 19th Congress by the Makabayan Bloc through the Super-Rich Tax Bill, which estimated P503 billion in tax revenues. This is significantly higher than the P120.5 billion in government revenues forecast by the state’s economic managers’ proposed tax reforms dominated by excise taxes.
Larger tax revenues from corporations and billionaires can fund better social services and subsidies for small-to-medium enterprises (SMEs). Subsidized SMEs can safely comply with the P750 minimum wage hike proposed by another Makabayan Bloc bill to meet the ideal family living wage of P1,187, according to Gabriela Women’s Party Rep. Arlene Brosas.
In synergy with these reforms and hikes, the government must increase its health, education, and social assistance budget. Doing so entails abandoning policies exclusively favorable to the rich, disguised as economic stimulus, but in reality only rob citizens of more funds to enrich a few billionaires. Ultimately, proactively taxing corporations and sufficiently financing people’s social services will allow citizens to weather the cost-of-living crisis. ●
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