Ways to alleviate poverty

There are many ways by which the government can alleviate poverty. One of them is through taxation.

From a layman's point of view, taxation is an act of government to get from those who have, to sustain its operations and to benefit those who do not have.

In short, it is resource allocation.

This resource allocation comes in two forms, namely: outright tax exemption or preferential tax rate and revenue allocation.

Outright tax exemption means that the government is not collecting any tax, while preferential tax rate means that the government is imposing a reduced tax rate.

For example, individuals in the lower income brackets are either income tax exempt or subject to lower tax rates of 5, 10 or 15 percent, versus those with high income who are taxed at 32 percent.

Thus, a family man with four qualified dependent children and earning the minimum wage of P362 a day, or an average of P9,000 a month, will pay not more than P4,350 a year.

Overseas Filipino workers are also tax exempt on their foreign-sourced income.

Small businesses or those with gross sales or receipts from business not exceeding P1.5 million in any twelve-month period are not subject to the 12-percent VAT.

Instead, they are taxed at the rate of 3 percent of their gross quarterly sales or receipts.

As we go about our daily life, we must provide for our basic needs of food, shelter, health care and education.

To reduce the cost of basic needs and hopefully make them affordable to the poor, our tax laws provide for certain tax exemptions as follows:

Food-related
The National Internal Revenue Code (NIRC) grants VAT exemption to some transactions relating to the importation, sale or production of food items, such as: agricultural and marine food products in their original state, livestock and poultry producing foods for human consumption--thus, fish, vegetables, meat and fruits we buy from the market are exempt from VAT; fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds; services by agricultural contract growers and milling of palay, corn and sugar cane, and sales by agricultural cooperatives duly registered with the Cooperative Development Authority.

Housing is being made affordable also through VAT exemption.

For example, lease of a residential unit with monthly rental not exceeding P10,000 is exempt from VAT. The same is true with the sale of house and lot not exceeding P2.5 million.

Health care
To reduce the cost of health care, the law exempts from VAT medical, dental, hospital, and veterinary services except those rendered by professionals.

Educational Services. Likewise, the cost of education is being supported by exempting from VAT educational services of duly accredited private educational institutions, and the sale, importation, printing or publication of books.

Income tax relief of schools and hospitals. In addition to being VAT exempt, nonstock and nonprofit private educational institutions and government educational institutions are exempt from corporate income tax, while proprietary or profit-oriented educational institutions are taxed only at 10 percent (as against the regular 35 percent rate) of taxable income from direct school operations, provided income from unrelated activities does not exceed 50 percent of total gross income.

Similarly, non-profit private hospitals are taxed at 10 percent.

Tax relief to BMBEs
The government encourages the formation and growth of Barangay Micro Business Enterprises or BMBEs to serve as seedbeds of Filipino entrepreneurial talents and generate employment and help the poor at the barangay level.

Under the enabling law, Republic Act 9278, BMBEs are exempt from income tax on income from operations.

To reduce the cost of BMBE borrowings from accredited financial institutions, interest, commissions and discounts on loans earned by said institutions are exempt from the gross receipts tax.

Revenue allocation
Another mechanism to help the poor is through budget or revenue allocation.

At the National Level. Tax revenue is the main source of government income. At least 60 percent of tax collected accrues to the National Treasury and is made available for general expenditures.

The revenue is allotted to various government departments and agencies taking into account their operational and project requirements.

This allotment goes through a tedious budgetary process before it can be disbursed.

As part of the administration's commitment to alleviate poverty, Malacañang recently proposed a 60-percent budget increase for pro-poor programs and projects for fiscal year 2008, or a total of P166.8 billion compared to P104.5 billion for this year.

Allocation to LGUs. At the local levels, revenue allocation comes in the form of: internal revenue allotment (IRA), share of LGUs in nation's wealth, share of LGUs in the proceeds of the reformed VAT law, and share in 5 percent Gross Income Tax or (GIT) under the Philippine Economic Zone Authority (PEZA) Law.

Internal Revenue Allotment (IRA). At least 30 percent of internal revenue collections, known as IRA, are allocated to the LGUs throughout the country as provided for in the NIRC and the Local Government Code.

Provinces, cities, municipalities and barangays share in the IRA based on area, population and equal sharing up to a certain percentage.

LGU share
LGUs also have a 40-percent share in the national government's collection from excise taxes on mineral products, royalties, and such other taxes, fees or charges, and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of the national wealth within their territorial jurisdiction.

In May 2005, the government adopted a fiscal reform program which included increasing the corporate income tax rate from 32-35 percent and the VAT rate from 10-12 percent.

If you may recall, this was a project of former Senator Ralph Recto and some people say that this is one reason why he lost in the recent election.

The good news is that the LGUs' share in the incremental VAT collections and 50 percent thereof are earmarked for construction of school buildings, health insurance, environmental conservation and agricultural modernization.

The PEZA Law also provides that 2-5 percent tax on gross income earned by all business enterprises within the economic zones shall be directly remitted to the treasurer's office of the municipality or city where the enterprises are located.

Innovations in tax administration and collection.

To further increase tax collection, the BIR and the Bureau of Customs continue to innovate by using the latest technology and marketing techniques.

Computerization
Foremost of the initiatives is the Tax Computerization Program started in 1994.

The core of the Computerization Program is an integrated tax system with a standard processing framework designed to increase revenue collections, improve taxpayer service, promote better taxpayer compliance, and improve operational efficiency and transparency.

The Integrated Tax System is a set of related systems and processes that provides maximum automation and minimum manual intervention in BIR operations.

With 14 application systems in place, it allows the Bureau to approach all of its information and major business functions in a consolidated manner.

The RELIEF or the Reconciliation for Listing and Enforcement Program or the "no contact audit approach" works by matching the data on sales provided by suppliers with the data on purchases provided by buyers.

This matching technique discloses large discrepancies in sales and purchases which provided the BIR a basis to assess and collect substantial deficiency income tax and value-added tax from many taxpayers.

Starting in 2001, the Electronic Filing and Payment System (EFPS) has been in place consistent with the requirements of the "Electronic Commerce Act".

Large and non-large taxpayers have availed themselves of the electronic filing and payment system, thereby promoting more efficient tax collection.

Also, staggered filing of certain monthly tax returns based on five industry classifications have helped facilitate tax collection.