Category: Economics & Business

How our super-rich enjoy low tax rates

The Manila Times, April 22, 2013

I CERTAINLY admire property magnate Andrew Tan’s forthrightness and audacity for disclosing his income and the taxes he paid on these. In contrast, magnates Oscar and Manuel Lopez got their hacks to report the deniable “sources within the Lopez group of companies on Tuesday pointed out that family patriarch Oscar Lopez and his brother Manuel had paid P37 million and P11 million in taxes, respectively, for 2011.”

Still, Tan’s unprecedented disclosure reveals how our super-rich manage to avail of very low tax rates just a bit higher than 10 percent, or the effective rate for those earning, believe it or not, just P20,000 a month.

Tan in 2011 earned P22.3 million in salaries and P3.8 million in director’s and consultant’s fees, on which he paid taxes of P7 million and P1.2 million for a tax rate of about 32 percent—which is the maximum for income earned from an employer or a contractor.

The bulk of Tan’s income is P518.1 million in cash dividends, or earnings from his stocks in his companies, on which he paid a tax of P51.8 million, or exactly 10 percent, which is the rate on such income. Tan’s total earnings amounted to P544.2 million, on which taxes paid totaled P60.1 million, or effectively at an 11 percent tax rate.

The 10 percent rate on cash dividends was lowered from 15 percent by President Marcos through Presidential Decree No. 1800 in January 1981. Ironically, the lowering of the rate was in order to “raise capital to hasten the industrialization of our developing country.”

On the contrary though, most of the industrialized countries of the world have much higher tax rates on dividend income, with the average among industrialized countries of Organization for Economic Cooperation and Development at 36 percent.

The US has what could be the most equitable tax rates on dividend income, which is a graduated scale depending on the taxpayers income level. That is, if one is in the two lowest income brackets, no taxes are imposed on his cash dividends, which likely would be from his few holdings of shares listed in the stock market. However, if a taxpayer is in the top income bracket, the tax rates on his cash dividends is 35 percent. (Most Southeast Asian nations as well as India also have a 10 percent tax rate on dividend income, with Cambodia and Vietnam imposing no taxes in their bid to attract more foreign capital. China has a 20 percent rate. )

Such income from dividends was termed in Marcos’ decree as “passive income.” However, this has become our magnates’ main form of income to skirt the 30 percent tax on corporate income, and explains the surge in the establishment of corporations in the past decade, and the decline of the single proprietorship as magnates’ preferred enterprises even if they or their families are practically the sole shareholders. Incorporation also had become a generator of income when they do list their stocks in the bourses.

The fact that dividend income has become the preferred tax haven for our magnates explains why 30 of the 40 Philippine billionaires in Forbes’ magazine’s listing aren’t in the Bureau of Internal Revenue’s top 500 taxpayers. The tax on dividend income (like the taxes on capital gains and bank savings) are final taxes, which means that no other taxes are imposed on these kind of income and therefore, need not be reported.

While magnates like Lucio Tan, John Gokongwei, and Andrew Gotianun are earning hundreds of millions of pesos yearly from cash dividends from their conglomerates, none of these three are among their firms’ officials, and therefore do not get “income from compensation” on which the maximum 32 percent tax rate is imposed, and which requires the filing of tax returns either individually or through the corporation in its “substituted filing.”

No wonder then that out of the BIR’s top 500 taxpayers,384 or 76 percent are professional executives, and about a dozen are movie and TV celebrities. The majority or 237 taxpayers were foreign executives. The tax rate on dividend income is a pillar of the country’s inequitable tax system and reflects the rule of the elite in our country. Surprisingly, even the latest studies of the World Bank and the International Monetary Fund did not even discuss the tax rates on dividend income, and instead proposed to government increases in excise taxes on tobacco, liquor and petroleum and even a new tax on SMS usage.

Filed under: Economics & Business, Manila Times Columns

Why EDSA changed little of the country (Second of Two parts)

As published in the Manila Times, February 27, 2013

As I explained in this column Monday, the EDSA Revolution was hardly a rocket booster for our economic growth. Using one important economic indicator, gross domestic product per capita, which roughly represents a nation’s prosperity, ours in 1972 was larger than China, Thailand or Indonesia. By 2011, these countries had overtaken us by this economic indicator.

Why?

One obvious answer is that the 1987 Constitution, which People Power President Corazon Aquino ordered rushed to replace that Marcos created in 1973, had two provisions which have been dead-weights to our country’’ growth. The first continued a crucial economic policy since our independence, purportedly to protect our national bourgeoisie, who however were actually monopolists: Restrictions on foreign ownership on certain industries and on land. Certain revisions such as a 25-year lease, renewable for another 25, full foreign ownership of condominium units, and liberal interpretation of common and preferred shares just have not made our country attractive to foreign investments. The spectacular growth of Malaysia and Thailand in the 1980s, and Indonesia’s surge in the 1990s have proven without any doubt the crucial role of foreign capital in a developing country’s growth.

Even nearly xenophobic China with its decades of “anti-imperialist” slogans has been the one of the biggest recipients of foreign capital in recent years, which partly explains its spectacular growth rates. The chart above clearly shows how our foreign investments into our neighbors have surged since 1987, while our level of foreign capital inflow have hardly changed. In 2012, Cambodia and Myanmar in fact have had more foreign capital inflows than ours.

The second provision in the Cory constitution restored the pre-martial law political system, which has been and will be the biggest baggage for our country: the presidential system, which Aquino and her allies most probably opted for as a reaction to Marcos’ move towards a parliamentary system (remember the Batasang Pambansa?).

We are one of the few countries, which maintain a system in which the people directly choose the President, who is both head of state and government. Our system hasn’t been “debugged” in the way that of the US has been, with such refinements and checks as the system of electoral colleges, primaries a strong party system, and one-on-debates among presidential contenders.Continue reading

Filed under: Economics & Business, Manila Times Columns, PoliticsTagged with: , ,

Economics of Martial Law and People Power

Never forget!

Did Filipinos one day in 1986 suddenly become enlightened to demand the toppling of a dictatorship?  Maybe so, but we forget that there were gut issues that broke out in 1983, which prodded Philippine oligarchs that had supported Marcos for more than a decade, to decide to junk him.  

I wrote the following piece last year in my column at the Philippine Daily Inquirer.

Economics of Martial Law and People Power

Thursday, 04 October 2012 08:08
By Rigoberto Tiglao
Philippine Daily Inquirer

Every year in September, in a ritualistic way the tale is told: A Dark Lord imposed his will on a hapless people, but then a messiah sacrificed his life to embolden Filipinos to topple the regime in 1986.

That’s a fairy tale, its old, overused storyline that of a Lord-of-the-Rings kind of entertainment, enough for medieval men, and for small minds today to explain the past. But reality is always, and in all ways, complex. Continue reading

Filed under: Economics & Business, Inquirer Columns, Politics, Updates and Thoughts

Did EDSA matter? (First of Two Parts)

Manila Times,  24 February 2013

Like many of my generation and social stratum, I hailed the EDSA Revolution, and as late as 2009, I wrote a front-page article in the Philippine Daily Inquirer’s 2009 special edition that had the lead: “Corazon Aquino may well be

the first Filipino to have a global impact: She inspired the nonviolent democracy movements that swept the globe in the past two decades.”

I stand by that assertion. Although, there are really mundane factors for that, among them, the role of the PR-political consultancy group Sawyer Miller (Cory’s speech writers and image maker) and its cashing in on its Manila experience and template to advice, for hefty fees of course, Latin American and Eastern European anti-dictator movements. (Cf. James Harding, Alpha Dogs: The Americans Who Turned Political Spin into a Global Business. Farrar, Straus and Giroux, 2008).

The unique features and dynamics of Western journalism at that time also explain much of the EDSA Revolution’s worldwide impact.

Together with the anti-Soviet Solidarity movement in Poland, EDSA was the beginning of the new media that would transform the world, pioneered by CNN: real-time televised coverage—revolutions at the other side of the world brought to Westerner’s living rooms as they happen.

EDSA was an episode, in which the Western press first demonstrated its powerful role in changing the world: What some would see as assisting democratization movements but which others would condemn as interference in sovereign countries. That template would be used in successful and unsuccessful anti- authoritarian revolts in this century, even as recently in the so-called Arab Spring revolts.

After the Vietnam War and Nixon’s fall, droves of US journalists lusting for the Pulitzer prizes were desperately looking for romantic stories of good and evil, and the story of a widowed housewife challenging a dictator was a story editors loved, front-page material for many, many newspapers. Time, Newsweek and Far Eastern Economic Review, and many more would make Cory and the People Power revolution their cover stories. Thus, the morality tale of good-conquering evil was a storyline disseminated around the world, inspiring democratization movements, some successful some not.

However, nearly three decades after EDSA now, we have to stop patting ourselves in the back for our role in world democratization.

We have to demythologize it, as its legacies—or curses—haunt us to this day. EDSA for many reasons is responsible for why we still are where we are, why the county’s still poor, left behind in Asia.

The most important question is this: Has EDSA really helped our country at all, has it mattered in uplifting the lives of millions of impoverished Filipinos?

The unequivocal answer is no. Use a simple indicator as the country’s gross domestic product (GDP) per capita (at current US dollars), which roughly measures the wealth it produces per person

Our GDP per capita hasn’t grown as fast as our Asian neighbors after 1986, as shown in the chart, which is simplified to include figures for just three other countries.

Our GDP per capita was at $214 in 1972, when the country fell into authoritarian rule. That was higher than China’s $130, Thailand’s $209, and Indonesia’s $93.

By 2011, ours was the lowest at $2,370. China’s $5,445 was more that twice that of ours, so was Thailand’s $4,972. Indonesia’s $3,494 GDP per capita was 32 percent bigger than the Philippines. EDSA was powerless, or useless in enriching our country and pulling millions of Filipinos out of poverty.

The countries which overtook is in terms of GDP per capita didn’t have such a glorious episode as the EDSA Revolution.

Indonesia’s Suharto in fact ruled as a strongman for 30 years—10 years more than Marcos—to be toppled only in the wake of the 1997 to 1998 Asian financial crisis that hit it severely. China had the exact opposite of our EDSA Revolution: its Tiananmen Square Democracy Movement, which was ruthlessly crushed by the state. Thailand’s history would be marked by one “people power” (the urban “Yellows”) versus another “people power” (the rural “Reds”). Yet it would fast bounce back from the disastrous 1997 to 1998 Asian financial crisis.

Well, Cory’s successor just bungled it, yellow commentators would claim. Not really.

Average annual growth rate of the GDP per capita (in current US dollars) during Cory’s watch was 7.4 percent, which was lower than the 13.6 percent in the heyday of martial law from 1973 to 1982. (The period 1983-1986 was extraordinary, since the country went through its political crisis at the same time that the global debt crisis broke out.)

That of her anointed successor Fidel Ramos was at a low at 3.5 percent but that was because the economy was severely hit by the 1997 to 1998 Asian financial crisis. That during Joseph Estrada was 4 percent. The highest in the post-EDSA period was during Gloria Macapagal-Arroyo’s administration, at 8.1 percent, despite the global financial crisis that severely hit the country in 2008 to 2009.

However, peruse the lines in the chart at the beginning of this column: What’s obvious is that our country, as it were, seems to be simply gliding, with hardly any of the upward bursts characteristic in the lines representing our neighbors GDP per capita.

This reflects the reality that nothing much, nothing structural, had occurred as a result of the EDSA Revolution. It didn’t remove the baggages weighing heavily on our economic and political structures. EDSA was essentially a restoration of pre-martial law Philippine society.

 

Filed under: Economics & Business, Manila Times Columns, PoliticsTagged with: , , ,

PH left out in China’s global investment surge

FINE time for President Aquino to put our territorial disputes with China—which started fifty years ago and whose resolution will take probably a hundred years—at the forefront of our diplomatic relations with the newest economic superpower.

Great timing for our country to be the noisiest among five claimants, condemning China as the region’s bully, and practically calling the global bully—the US—to go to our neighborhood and beat up that troublemaker. The four other protagonist against China’s claims (Malaysia, Vietnam, Taiwan and Brunei)—as well as Cambodia and Myanmar must be cheering us on to antagonize China—while laughing at us behind our backs.Continue reading

Filed under: Economics & Business, Manila Times Columns, Politics

Cambodia, Myanmar overtake PH in FDI flows

 

President Aquino’s claims that foreign investors have been queuing up to invest in the country enticed by his daang matuwid governance just don’t seem to match reality. Last year, for the first time ever two of the more backward ASEAN countries, Cambodia and Myanmar, overtook our nation in terms of foreign direct investment inflows (FDI).

According to data from the United Nations Conference on Trade and Investments’ latest “Global Investment Trends Monitor,” FDI inflows in 2012 into Cambodia totaled $1.8 billion, a 104 percent increase from last year. Myanmar (Burma) on the other hand had $1.9 billion for 2012, a 90 percent increase from last year. (The figure for Singapore is way too big to include in chart, in 2012 at $54.4 billion.)Continue reading

Filed under: Economics & Business, Manila Times Columns

Why many Filipinos are poor (2)

TO RECALL the first part of this topic, the World Bank’s latest report on the country, titled “The Philippines: Fostering More Inclusive Growth,” started its analysis of poverty in our country by asking: “Who are the poor, what are the characteristics of the poorest Filipinos?” The World Bank’s answer: first, the typical poor Filipino belongs to a large family of five members; second, he lives in a rural area.

My past two columns dealt with the first part of the answer: Our unbridled population growth has become one of the major factors causing poverty. We focus now on the second characteristic of the poor: Seventy-one percent of poor Filipinos live in rural areas. Poverty is mainly a rural phenomenon.

Continue reading

Filed under: Economics & Business, Inquirer Columns