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.

How is poverty defined

Republic Act 8425 known as the Social Reform and Poverty Alleviation Act defines the poor as individuals and families whose income fall below the poverty threshold as defined by the government, and who cannot afford in a sustained manner to provide their basic needs of food, health, education, housing and other amenities of life.

The National Statistical Coordination Board states that: "For 2007, Filipino families consisting of five members should be earning a combined monthly income of P6,195 in order to meet their most basic food and non-food needs for this year. A sole breadwinner in a five-member family residing at the National Capital Region is expected to find a difficult task in bringing the entire family above the poverty line if he/she only earns at most P 265 per day."

Rural Poverty in the Philippines

Rural poverty in the Philippines

About half the population of the Philippines is rural, and agriculture is the primary and often only source of income for rural poor people. Poverty is most severe and most widespread in rural areas, where almost 80 per cent of the country’s poor people live. Most of them depend for a livelihood on subsistence farming and fishing.

In general, illiteracy, unemployment and the incidence of poverty are higher among indigenous peoples and people in the upland areas of the Philippines. Overall, more than one out of three people in the Philippines lives in poverty.

Who are the rural poor in the Philippines?

The poorest of the poor are indigenous peoples, small-scale farmers who cultivate land received through agrarian reform, landless workers, fishers, people in upland areas, and women in all categories.

Where are they?

Despite progress in reducing the overall level of poverty in the country, disparity among regions is increasing and the poverty gap between urban and rural areas is widening. Since 1990, urban poverty has dropped by 14 per cent while rural poverty has decreased by only 4 per cent. Among the regions that have seen the largest increases in poverty are those in the southern island group, including the Autonomous Region of Muslim Mindanao and Region XII on Mindanao Island, and Bicol in the Visayas region. Rural people in Western Mindanao are among the poorest in the country.

Why are rural people poor in the Philippines?

The causes of poverty in rural areas in the Philippines vary widely from island to island. They include a decline in overall national growth, political instability and fiscal restrictions that have led to declining public services. Microentrepreneurs face a policy bias that favours large firms and capital-intensive industries, and a lack of relevant laws and administrative procedures. They lack access to investment and credit, to complete market information, and to opportunities to develop skills.

In Northern Mindanao, for example, most rural poor people have limited assets. Most are landless, and some depend for their livelihood on work as tenant farmers or paid agricultural workers. For people living in rural areas, the lack of social infrastructure and services makes the effects of poverty even more acute.

Much agriculture in the Philippines is carried out at subsistence level. Because of the highly seasonal nature of agriculture, its vulnerability to price fluctuations and the generally low prices offered for raw products, agriculture cannot by itself make a substantial difference in levels of unemployment, underemployment and poverty.

Source: IFAD/ Rural Poverty Portal

Poverty in the Philippines

Poverty is a significant problem, but in combination with inequality, it poses a serious threat to stability in the Philippines. In 2003, almost 23.8 million people lived below the Philippines' poverty threshold. This represents 24 per cent of Philippine families and 30 per cent of the population. According to international data, 44 per cent of the population subsisted on US$2 or less a day. In addition, the Philippines has one of the highest levels of income inequality in Asia, with the poorest 20 per cent of the population accounting for only 5 per cent of total income or consumption.

Poverty in the Philippines is mainly rural and, although variable by region, is widespread in the southern Philippines, particularly Mindanao. Poor productivity growth in agriculture, under-investment in rural infrastructure, unequal land and income distribution, high population growth and the low quality of social services lie at the root of rural poverty.

Natural disasters, the risks associated with variable markets, and armed conflict in Mindanao, also threaten to deepen existing disparities by disrupting growth and worsening poverty.

Understanding Poverty

To understand the real poverty in the Philippines, i searched and found this very interesting article in the web from textmania website

October 2001. The Population Commission (Popcom) said there are 30.6 million Filipinos or 6.12 million families who are suffering from poverty. When I learned about this, I took consolation with the notion that I am not alone, yet I felt dismayed over the complacency of our national government officials who seem undisturbed by the fact that 40 percent of their constituents live below the poverty line throughout the country's 78 provinces, 84 cities or 41,940 barangays. How can they sit back and relax?

There are about 77 million Filipinos today, and this number is growing by 2.05 percent annually. This means that some 1.5 million Filipinos are born every year, 600,000 of whom to poor parents. Some 32.5 million Filipinos, comprising 66.3 percent of the population, are considered matured enough to work. But 3.3 million of these people, or 10.1 percent of the workforce, cannot find jobs while 5.2 million others, or 17.7 percent, have no regular source of income.By international standards, these are critical problems. The Taiwanese government is in the brink of panic, because the unemployment rate in that country just north of Luzon is threatening to hit 5 percent, year-on-year. Yet, our Filipino government officials are sitting relaxed inside posh restaurants and five-star hotels, as 8.5 million Filipinos or 28 percent of the workforce are trying to figure out where to source the next meal for their families.

According to the World Bank, the Philippines had a per capita GNP of US$1,050 in 1999, compared to China's US$780, Indonesia's US$600, Vietnam's US$370, Lao's US$290 or Cambodia's US$280. Yet, the Philippines' poverty incidence rate of 40 percent is higher than China's 3 percent, Indonesia's 23 percent, Vietnam's 37 percent, Lao's 38 percent or Cambodia's 36 percent. Why is that? Wealth in the Philippines is concentrated on the hands of the few, that's why. It is the World Bank, and not the NDF, which gave such explanation.

Now consider this, the prestigious Forbes magazine has included at least five Filipinos in the list of world billionaires (US dollars). Let us rejoice! Imagine, highly industrial and welfare states like France, Finland, the Netherlands, Norway and Sweden do not have a single representative to the billionaires' circle. Among Southeast Asian countries, poverty incidence is most extreme in the Philippines where some 15.3 million Filipinos (half of the poor population) wake up every morning without food on the table. These people are called subsistence individuals or whose income cannot provide for basic food requirements. Popcom's data is even conservative because in its interpretation, a family of six earning a total of P72,000 a year is not considered poor. In contrast, a study conducted by the National Wages and Productivity Commission (NWPC) pegged the minimum income that a family of six must earn annually at P191,874 in order to live decently in Metro Manila.

The labor sector has been demanding for a P125 daily wage hike or 50 percent of the current level but the group of employers claimed that such wage adjustment would force many establishments out of business. Listening more to the rhetoric of the rich rather than to the howl of the poor, the Regional Tripartite Wage Board has approved only a P30 daily wage increase in the metropolis. The Department of Trade and Industry (DTI) event want us to believe that the previous minimum daily wage of US$5 (P250) in Manila is much higher than China's US$1. Ironically, the Philippines reported a poverty incidence rate of 40 percent, much higher than China's 3 percent.

What makes things more difficult for us is the high prices of commodities. The country's inflation rate, estimated at 6 to 7 percent annually, is the highest in Asia. Japan, a super rich country, is ironically having a deflation. Let us make some computation. A person who is covered by the minimum wage would not take home P250 a day. Most likely, the wage, after tax and pension deductions, on top of travel and meal expenses, would amount to something like P150. A person who passes by a fastfood center, which is not in anyway a luxurious restaurant, might spend at least P50, or 33 percent of his take-home income on a roll of rice and a fried chicken wing. That explains his purchasing power. Imagine spending all of your daily income in just three meals at an inexpensive restaurant. Food is supposed to account for less than 20 percent of a man's expenses.While it might be true that a P125 daily wage adjustment will be bad for business (the Central Banks warned it would push inflation rate to 18 percent), this might be the only option that the poor has against poverty. Unless the government can do something like bringing the prices of food and other basic commodities, there is no other recourse but to increase the poor's purchasing power. The government needs to do its own computation, and put some system in managing the affairs of the nation.Sadly, it seems that our government officials haven't learned anything from the past. Only last year, about 500 people were killed when a 50-meter pile of garbage collapsed on their makeshift houses in a dumpsite in Quezon City. This was the absolute face of poverty, whose image failed to instill understanding among our numb leaders. Now, who could blame the 20,000 protesters who stormed to Malacanang Palace last May 1. The people in the media, who were not even aware on what the attack was about, had the guts to brand these protesters a mob of poor and undisciplined warriors. It also seems that the current crop of leaders have nothing to offer, and one opposition senator even admitted that in 30 years, the Philippines will not even reach the level of Thailand, which I understand, is still a poor country. This is anything but encouraging. Imagine spending the next 30 years of your life in poverty (if the tension in Central Asia does not lead into another world war, of course).

We wait for a day that one leader will rise to change our mindset and status in life. Someone who will promise to turn the Philippines into a country of mostly rich people in his lifetime and can convince us that he really can.