'...people who you think are among the country’s richest are not in the Top 500 Taxpayers list. So, too, are prominent and fabulously rich people who often rant about the need for good governance and having good corporate social responsibility'.
I am not bothered so much about the fact that the Philippine's richest people are not the highest tax payers but rather I am bothered by the idea that most of us think that this actually means that the Philippine's richest persons are crooks, liars and tax evaders. Although, the article did not specifically say that the Philippine's richest are tax evaders, the article mentions GMA 7 TV Network Senior Anchor Mike Enriquez and let me quote (emphasis added);
'...Enriquez (is) the country’s highest paid media-man. He finds it funny, if not ridiculous, that he paid more taxes than the owners of the two largest TV stations. “That means I pay the correct taxes,” he notes. His channel 7 colleague, Mel Tiangco, is No. 45 with P8.9 million in income taxes paid. That makes her the highest paid female broadcaster.With that statement, I tend to believe that since they (Mr. Mike Enriquez, maybe?) think they "pay the correct taxes", this only means that the owners of the two largest TV stations in the Philippines are not paying the right taxes. But is this really true? Is this the real score? Or is there something else that we don't see that only those who understand it just a little bit more can?
With my limited knowledge, let me try to explain why I believe this article was only able to paint half of the picture. Only one side of the coin, as they say.
The Richest Filipinos are NOT the Highest Tax Payers
It IS TRUE that the richest Filipinos are not the highest tax payers. That is not contestable since Bureau of Internal Revenue (BIR) is the one who released the data, according to Mr. Tony Lopez. However, let me suggest that this does not mean that they are the biggest crooks and liars or that they are tax evaders. In fact, it is far from it and let me explain using an example.
Henry Sy owns SM and all the names under it such as SM Prime Holdings, SM Development Corporation, SM Investments, etc. If you look at these names alone, you see that all of them pay taxes, whether one is a corporation or an individual. BIR requires corporations, partnerships and individuals to pay the right taxes. Since Henry Sy is both an individual and THE OWNER of all SM companies, he is in fact paying taxes both as an individual and through his corporations. I believe the list that BIR released was just the top individual taxpayers in the Philippines. But the article did not mention about the top corporate tax payers in the Philippines. I don’t have this information as well but I would be almost sure we will be surprised that you’ll see a lot of Henry Sy’s companies in the top 100 or so.
Let me give another example. Say Mr. Juan Dela Cruz owns JDLC Company (both are fictitious names). For a certain year, let’s say his company earned a NET income of P100M. BIR requires the company to pay 30% of its net, so the company should have remitted a total tax of P30M. If you look at it at this point, you can safely say that Mr. Dela Cruz has already given a good share of HIS (company’s) income to the government. I could say he has already contributed well to his country. But did Mr. Dela Cruz already pay his individual taxes? At this point, not yet. Let me give you two scenarios on how Mr. Dela Cruz could pay his individual tax.
Taxed as an Employee
In the first scenario, let’s assume that Mr. Dela Cruz is also an employee of his own company wherein he receives an annual income of P10M. In this case, BIR requires Mr. Dela Cruz to pay also 30% of his annual income, which is a measly P3M, and all this time he owns a company that is worth P100M. It looks small, right? But in reality, through his company, he has already paid P30M an another P3M as an individual tax payer to the government coffers.
Taxed as a Non-Working Board Member
The second scenario is if Mr. Dela Cruz does not even work in the company but only owns it. This time, he only gets dividends and director’s allowances. Since he does not get his compensation as an employee, he is taxed very differently. Whereas employees are taxed a heavy 30%, dividends are only taxed a measly 10%. Now that’s a very big difference! So let’s say he receives annual dividends of P10M (example only), he actually just needs to pay P1M in taxes, even if he is actually not working. That seems to be unfair but this is the reality of our tax laws. I can’t help but be reminded of the very famous saying which goes, “The rich get richer and the poor get even poorer.”, and this is absolutely true in this case.
Who Then is The Biggest Taxpayer
Say for example, another employee of Mr. Dela Cruz (Mr. Celebrido, another fictitious name to represent the high-earning celebrities? Hehe) is earning an annual income of P20M. As an employee, therefore, he has to pay a total of P6M to BIR which is double that of Mr. Dela Cruz’s individual tax payment for the year as an employee. Now let’s put all figures into one place to get a clear picture.
- Mr Celebrido, the employee, paid a total of P6M for his individual tax
- Mr. Dela Cruz, the very wealthy employer and employee, paid only P3M for his individual tax
- But also paid an additional P1M for his final tax from dividends received
- And, more importantly, also paid another P30M for his corporate tax (as owner of the company)
With the figures above, who do you think paid more taxes and therefore contributed more to the Philippine economy? Mathematically speaking, I would say the richer of the two paid more and therefore contributed more.
Corporations vs. Employees
This is the biggest difference between an employee and an owner of a corporation. Employees are the heaviest taxed among all citizens in any country. Whereas corporations, owners and investors are given a lot more room to create tax savings. That’s the reason why big corporations and the wealthy hire top accounting firms that charge them millions of pesos... that is, to keep their taxes very low... LEGALLY!
Employee to Business Owner
It is painful to know this fact that employees are really carrying the greatest burden in paying taxes but this is the reality we are in. This does not mean however that we can remain default ‘victims’ of the government tax system. There are ways to save on taxes but it is almost impossible to do it as an employee.
I would like to end by asking everyone to give thought about how much more you can earn as a company owner (mostly corporation or even a consultant) compared to being an employee. Is it time for you to consider putting up a business that will grow, using your salary, instead of just remaining as an employee and spending what you receive on expenses and monthly amortizations? Or would it be good to start investing in investment vehicles that are taxed much lower and that can grow your money in time? Interest earned in banks from deposits are taxed a whopping 20% while one can actually get 0% tax on other kinds of investments).
Let me leave you with this idea. I believe that in order to help our country, we need to be excellent employees, and I know we all agree to this. But I also believe that to help our country even more, we need to become excellent entrepreneurs and investors.
Choosing to be one today is the first step. Then let your hunger guide you to where you need to go next.
Do you agree or disagree with what I said? What is your opinion about the richest people and their taxes? What about being an employee as against owning your own business? I'd really love to hear from you. Can you share your thoughts?
Reference: "The Richest Filipinos and the Biggest Taxpayers are Not the Same"
May you achieve true success!
Bryan
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