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Senior citizen complains of taxes on her savings

Published by sam - 30/04/08 - 04:04:44 pm

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Question:
I am now 69 years old and still working. But my saving is only P100,000. Will the government continue to impose tax on my saving in the bank? Where is the logic here? — Rose

You raise a very interesting point Rose and I am very sure that there are a lot of people out there who are asking the very same thing.

From the standpoint of government, taxes are its lifeblood. It does not really matter if we are talking national or local. The plain fact is that tax collections allow the government to provide services to its constituents.

I am sure that some may also be asking: Can’t the government just print money to pay for these services? Well, yes of course except that printing money has the nasty side effect of raising prices and propagating inflation. To keep everyone on even footing, then we have to print increasingly more money, creating a never-ending vicious cycle of print-inflation-print. As prices rise, inflation is just like a tax when we pay for the goods and services that we need.

The reality is that no one likes to pay taxes. But all of us like to benefit from “adequate” social services like police security, fire services and my all-time favorite, smooth roads and manageable traffic. From outright evasion to creative avoidance, managing the tax burden is something everyone does in every economy.

The net effect, Rose, for the Philippines is a tax take that perennially falls well short of planned expenditures. From the late 50s to the present, I think we only have had five years where the national budget was in a surplus; in all other years, a budget deficit has been the norm.

I am guessing that it is the pursuit of added tax revenues that has left our tax structure what it is today. My analogy of it is that of an onion: we have so many (repetitive) layers of taxes but if you peel through them one may not find an underlying core (something of a principle that can bind the layering). And because financial taxes are quite easy to administer and with a broad tax base, the bulk of our taxes are anchored on the finance side (like the tax on the interest on your saving) rather than on the consumption side (you want the good, then pay the tax).

Let me spare everyone the economic mumbo-jumbo and instead share with you what I believe: I do not think it is a good idea to be taxing saving and I would rather see the tax burden reduced proportionately as a generation goes beyond some threshold age.

If saving is the fuel that gets converted to either loans and/or investments for our children, tax is a hindrance. The problem of course is that our tax structure already relies heavily on finance-related taxes so the idea prospers only if we can find something else to tax.

This is the harsh playground of policy recommendation and legislative initiatives. At the end of it all, someone ends up paying more so that someone’s pet idea gets taxed less. What is the chance you can convince those who have to pay more in taxes (so that others can pay less) that this is such a good idea? For the greater good? If that were the case, taxation wouldn’t have been a problem in the first place, right?

But, I still would like to get a crack at a “rationalization” of our financial taxes. I am not talking about an exempt-this-tax-that approach but one that starts from the core of the onion. For example, since electronic documents are now legal and binding, can we not make the Documentary Stamp Tax an insignificant small lump-sum tax that can pay for registering the document details in a national repository for legal purposes? This “physical registry” was the reason for having the DST in the first place but this can very well be replaced by kilobytes of hard disk storage.

As for the second idea, the problem here is largely tax administration. Someone has to be mandated to keep tab of the age of the retail client so that if one is above, say, 55 years old you are already exempt from such taxes. That should give the older generations more benefits from their saving but you can also imagine how the system can degenerate to being cumbersome and unwieldy. If we are not careful, this may lead to a surge in the number of senior citizens in the country!

This is the very same administration problem faced by the Social Security System for pensions and for the Senior Citizen discount on medicines. And just as physical appearance is required to validate one’s pension, would our senior citizens be required to be physically present at withdrawal too? Can we take the word of the account officer? Then who vouches for the account officer?

In the end Rose, the textbooks say that taxation is premised on equity (fair to all) and efficiency (easy to administer and grows as the tax base expands). In practice though, it is just amazing that every proposal ends up alienating one whole side: either the tax collector, the taxpayer or among the different subgroups of taxpayers.

Maybe Rose it is time to start earmarking taxes (i.e., cigarette taxes go to health care, taxes on interest income go to road maintenance etc). This is presently not legal and would require a legislative cure. But if we indeed go this way, we can at least directly correlate our tax payments with the tax benefits. Maybe this helps because we can directly see the cause-and-effect relationship.

All these still have to be anchored on basic principles so that the taxes have a clear use before we even try to collect them. Otherwise, all we are doing is coating the layers and layers of taxes. I like onion rings Rose but not in this form or fashion.

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