A WEALTH tax on billionaires would require a stronger government information system to track assets and prevent tax avoidance, capital flight and liquidity problems, tax policy experts said, as lawmakers push measures seeking to make the tax system more progressive.
“Without strong information systems, a wealth tax risks becoming a tax on people whose assets are easy to see while sophisticated taxpayers restructure or move assets beyond the tax authority’s reach,” Asian Consulting Group Chief Tax Advisor Raymond A. Abrea told BusinessWorld via Viber.
Mr. Abrea said the government should establish clear market-based valuation rules, require strict beneficial-ownership disclosure and strengthen third-party reporting by banks to close potential avenues for tax evasion.
The Bureau of Internal Revenue, Securities and Exchange Commission and Anti-Money Laundering Council should also match data, alongside stronger international exchange of financial information, he said.
Reasonable installment or deferral mechanisms could help address the difficulty of taxing illiquid productive assets.
Jose Enrique “Sonny” A. Africa, executive director of think tank IBON Foundation, likewise called for stronger information sharing among government agencies, transparency in beneficial ownership, asset registries and reliable valuation procedures.
The government should also boost cooperation in tracking offshore assets to deter tax avoidance and evasion, he said.
“The main challenge is tax avoidance and evasion where billionaires will doubtlessly try to find ways to make their taxable wealth smaller, as they already do with reducing their taxable income,” he said in a Viber message.
Several bills seeking to impose a wealth tax have been filed in the House of Representatives since March and remain pending before the House Ways and Means Committee.
Party-list Rep. Leila M. de Lima filed one of the measures on May 20, proposing an “ultra-wealth tax” on people with net assets exceeding P1 billion.
Under House Bill No. 9274, Ms. de Lima proposed an annual tax of 1% on net taxable assets above P1 billion, 2% on amounts above P2 billion and 3% on amounts above P3 billion.
Proceeds would fund public services, including health, education, the Local Government Support Fund, social protection, employment and housing.
The proposed tax seeks to address what Ms. de Lima described as an imbalance in the tax system, where consumption taxes such as value-added and excise taxes have a greater impact on lower-income households.
Mr. Abrea supported the proposed tax in principle but said its design should be carefully calibrated.
“There is a legitimate equity argument for asking those with extraordinary wealth to contribute more,” he said. “However, an annual tax of as much as 3% on the stock of wealth should undergo serious revenue and economic-impact modeling.”
Wealth differs from income, Mr. Abrea said, noting that a billionaire might hold shares in an operating company, property or other highly valued assets that do not generate enough cash each year to cover the tax.
“The objective should not be to punish wealth creation,” he said. “It should be to ensure that extraordinary wealth is taxed fairly, transparently and efficiently.”
Mr. Africa said the proposal addresses widening inequality and a shift in the tax burden toward consumption taxes.
Citing an IBON report on wealth tax, he said the richest 2% of Filipinos hold about P25 trillion in wealth, nearly equivalent to that of the poorest 80% combined. The measure could cover about 3,000 billionaires with combined assets of P8.2 trillion, he said.
“The billionaire wealth tax is not simply about obtaining additional revenue, Mr. Africa said. “It’s about correcting the inequitable distribution of the tax burden where taxing billionaires’ accumulated wealth is an important step towards more progressive and rational taxation.”
He said the tax could still leave billionaires with more than P7.6 trillion in wealth while generating at least P510 billion annually for social and economic services.
“The point of progressive taxation isn’t just to finance the government but also to redistribute economic resources and economic power,” Mr. Africa said. “A billionaire wealth tax is a sharp expression of how those who have benefited most from the economy and have the greatest capacity to contribute should be made to pay substantially more.” — KPBG