Proem

Have you ever thought that it is possible to increase the income of the National Government with all sectors in a win-win situation?

I have broached this idea to Congressman Edgar Chatto with a view to let him file a bill in Congress. Congressman Chatto was interested and intrigued with this novel idea.

Withholding Tax

Salaried employees are subjected to withholding tax. That is the employee's money that he could not enjoy because it is taken by the government every month even before it is due at the end of the year. My proposal is to first deposit in the bank the withholding tax before it is turned over to the Bureau of Internal Revenue (BIR).

Why? Because it will increase the income of the government. The interest-income in the bank is taxed by the government to the tune of 20%.

The Proposal

Let a law be passed that the withholding tax be deposited first in the bank for three months before it is turned over to the BIR. If the amount is big, many banks will be willing to accept it at 7% per year interest.

The government will sacrifice only the first 3 months because the other withholding taxes that will be deposited every month will be due every month from there on. The best time to start depositing will be on the beginning of October. The amount will be paid to BIR on January the next year. The amount deposited in November will be due in February and so on every month thereafter.

My proposal also is to let the employee get the 80% of the interest-income already tax free as an earning of his withholding tax to be paid back by the employer at the end of the year.

The Bank will be happy because it will have funds to invest. The BIR is happy because it has increased its collection, and the employee is happy because finally he will have some earnings from the taxes taken before it is due.

How Much Is The Amount?

This presentation is in the low and conservative side. According to the proposed Year 2008 National Budget, the salary expenditures for the National Offices is P160 billion. If we assume that the Local Government Units will also have another P160 billion, then we have P320 billion from salaries in the government. Assume that the private sector is 5 times the government sector o about P1,600 billion. So the total taxable salaries in the Philippines will be P1,920 billion. If we assume that the average withholding tax is 20% then we have P384 billion as withholding tax.

Divide the P384 billion by 12 months. It will give you P32 billion per month. Deposit the P32 billion per month for a period of 3 months at 7% interest compounded monthly. The Amount will become 32 (1.0176) = P32.5632 billion after three months. It earns income by P0.5632 billion. Twenty per cent goes to the government and 80% goes to the employees. The amount due to the government is P0.11264 billion per month. In 12 months the government will earn from interest-income to the amount of P1.352 billion.

This is in addition to the P384 billion withholding tax turned over to the BIR per year.

And of course the 80% interest-income of P5.407 billion per year will be shared by all employees in the Philippines.

Comment

Therefore it is possible to increase the income of the government by P1.352 billion and at the same time make the employees and the banks happy.

I proposed the start of the changes be at the month of October because the government will be busy for the closing of the fiscal year and could afford to forego the receipt of the withholding tax just for the first 3 months of the procedure.