Monday, March 10, 2008

Crazy Little Thing Called Taxes

Despite my late father being a tax lawyer, I nearly flunked taxation in college. And until now, this crazy little thing called taxes is to my eyes resembles a Gordian Knot, wound as tight as the roughly 30% withheld from my monthly paycheck. In a way, it's good that I'm employed, relegating the tax filing to the accounting department, unlike my freelancing friends who pay people to sift through a year's worth of receipts and bills and invoices just to get their tax obligations ironed out.

One day, I went through the taxation books in National Bookstore and found one that claims to be a simplification of the Philippine tax code. Now if that book was a serious distillation of our voluminous tax code, then brushing one's teeth should be rocket science. Either that or the author of that book lives his day-to-day hanging from his nostrils. I don't think majority of Filipinos know exactly what the Philippine tax laws are. We just see an amount withheld from our paychecks, see the sales tax and VAT on our receipts, and we're happy.

Thing is, the sales tax and VAT printed on receipts have been passed on to us ordinary folk. So we're still paying taxes to the government despite already allowing them to deduct withholding from our paychecks.

In the US, where taxpayers have it tougher because of the hounds of the IRS, there is growing support to overhaul their unwieldy tax system in favor of one single tax, a tax that's paid one time for the purchase of a good on the retail level. Under the Fair Tax proposal, a person gets 100% of his salary, and pays 23% for a new item--not a used item)--purchased. And that's the only tax the person has to pay, ever.

It's not an additional tax--it systematically replaces the taxes embedded in the prices of retail items. According to The Fair Tax Book, there is already an average of 22% worth of taxes (if I remember correctly) embedded in the price of a good. The prices won't technically change much, but at least the consumer gets 100% of a paycheck, translating to more buying power.

If you want to know more about the Fair Tax proposal, which is reportedly already sitting in the US Congress and Senate, you can check out the website.

Certainly, one can find many flaws in the proposal, particularly when it comes to how much revenue the government can generate. But the Fair Tax proposal's most endearing promise is to lessen the mental strain on the taxpayer, as well as give the taxpayer his due. As it stands, employees already devote over 1/4 of their working hours for the government coffers, whether they like it or not. Plus, people would appreciate an active involvement in national growth through a tax system that's easily understood, instead of paying blindly or finding ways to reduce tax obligation.

Blame me for my idealism, but wouldn't it be nice if we had something like that? The Fair Tax proposal came about when the proponents tapped the academics to study the tax landscape in the US, with the objective of developing a system that was fair and simple for everyone but still be able to generate enough funds for the government. Maybe our very own tax experts from the major universities can play the What-If game and come up with something for the Philippine setting.

Political will be damned, it'll make for a nice, eye-opening exercise.

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