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Advantages and Disadvantages of the Current

Administrations Move on Lowering the Income


Tax and Increasing the Value Added Tax

LOWERING TAXES
CONS

PROS
Increases

disposable income of
citizens and enables economic
growth. Another side-effect is it
limits government waste by requiring
government spending to be justified
against other possible government
expenditures (Government has a
tighter budget).

Lower taxes can increase incentives

to work. It is argued lower income


taxes will encourage people to work
longer hours and new people to enter
the
labor
force.

Possible

lack of public services,


particularly for unpopular services, such
as prisons and welfare activities.
Another poster mentioned the feeding
and clothing of prisoners as an
unpopular government expenditure.

Big Spender Effect - The government,

due to its immense size, is more capable


of taking on projects that individuals
and corporations could not easily afford,
namely road construction, most school
systems, and other projects. As the tax
decreases, the ability to accomplish
these projects is diminished.

Graduated or Schedular Rate


INCOME

TAX

ADDITIONAL

Not over 10,000

Plus 5%

Over 10,000 but not over


30,000

500

Plus 10% of excess over 10,000

Over 30,000 but not over


70,000

2,500

Plus 15% of excess over 30,000

Over 70,000 but not over


140,000

8,500

Plus 20% of excess over 70,000

Over 140,000 but not over


250,000

22,500

Plus 25% of excess over 140,000

Over 250,000 but not over


500,000

50,000

Plus 30% of excess over 250,000

Over 500,000

125,000

Plus 32% of excess over 500,000

Proposal
INCOME

Tax

ADDITIONAL

250,000

2,500

More than 250,000-400,000

2,500

Plus 20% of excess over 250,000

More than 400,000-800,000

32,500

Plus 25% of excess over 400,000

More than 800,000-2M

132,500

Plus 30% of excess over 800,000

More than 2M-5M

492,000

Plus 32% of excess over 2M

More than 5M

1.45M

Plus 35% of excess over 5M

This proposed structure provides tax relief to the majority who get
P400,000 and lower a year, and this will include the millions of minimum
wage earners.

BENEFITS

Under the current system, those earning P250,000 a year

are taxed P22,500 plus 25 percent of P110,000 or P27,500,


for a total of P50,000.
Under the proposal, those earning up to P250,000 a year

will be imposed an income tax of just P2,500.

THUS, theres a tax relief of P47,500.

Under the present system, those with a taxable income of

P400,000 pay P95,000 in taxes because they fall under the


income bracket more than P250,000 but not over
P500,000, which is levied P50,000 plus 30 percent of the
excess over P250,000.
Under the proposed reforms, the tax will be P2,500 plus 20

percent of the excess over P250,000 (or P30,000), for a


total of P32,500.

THUS, theres a tax relief of P62,500.

On this account, the government is


expected to incur P139 billion in foregone
revenues from this tax component, but it has
lined up compensating measures increasing
the Value added tax (VAT).

INCREASING VAT
PROS

CONS

Implementing VAT reform would

Adverse effect on poor households

increased

due to possible increased price


commodity

Due to the VAT increase, most


prices of products increase, people
have to care the price and their
expending. If the customers get
high income or salary they would
buy more products and less
consider about the price, however if
the people get low income or salary,
they may buy cheaper products and
consider much about the price.

VAT affect the behavior of small

result to expected
government revenues

companies. A small trader selling


services to households, such as a
plumber or electrician, might have
relatively small purchases of
intermediate inputs and face
elastic demand from purchasers,
who themselves cannot claim back
the VAT that they pay

NOTE : In terms of revenue impact, the first package will actually result in a net gain of P220.7 billion.

RECOMMENDATIONS
More spending money for families through tax cuts
Open economy to direct foreign investments
A smaller government is better.
The government revenues should just focus more on the protection of

its citizens via police and armed forces, and assurance of a good
functioning and credible justice system. Agencies which distribute
money and give subsidies to businesses or individuals, whether they
are rich or poor, should be lessened.
True capitalism is the best system for a society to progress.

SUBMITTED BY:

Bayno, Kelly Shaye


BSA-IV
Guevarra, Khrystyn Chloe
BSA-IV
Malabar, Judiel
BSA-IV
Sarin, Fritzie
BSA-IV
Tio, Sandra Allyn
BSA-IV