|
Pera
By Michael Alan Hamlin
February 04, 2002
In a bid to increase investment in
Philippine equities and startups, Congress has introduced what's
called "An Act Establishing a Provident Personal Savings Plan
Known as the 'Personal Equity and Retirement Account.'" That
typically long-winded legalese title is meant to be distilled into
the acronym, "Pera." Cute. But the cuteness undermines
the important role Pera could play in the development of the equities
market here. And it sure needs developing.
Originally filed during the previous administration
in the House by Mar Roxas and Ralph Recto and in the Senate by Jun
Magsaysay, the bill is meant to stimulate investment by providing
tax exemptions to individuals who establish a Pera account with
the intent of putting aside funds for retirement. Contributions
to the account are tax deductible, and earnings and income on Pera
accounts as well as withdrawals are tax exempt. Investors will have
to pay a 10% tax "equivalent" on contributions when they
are made. Theoretically, this is a great concept, assuming that
most people actually pay taxes and are therefore looking for ways
to lessen the burden while saving for the future. I'm not so sure
the Department of Finance, however, will be particularly supportive
of the act.
That may be why the draft I have of the bill limits
Pera accounts to a maximum of P50,000. The reason congressmen give
for limiting contributions to P50,000 is that it should benefit
the poor, rather than the rich. By this twisted logic - the poor
are focused on eating, not investing - if the maximum contribution
were to exceed P50,000 Pera would be a simple tax dodge for the
rich. There are, as usual, a number of infirmities inherent in this
self-righteous argument.
The obvious one of course is the assumption that the
rich actually pay their fair share of taxes. Without going into
the gory details here, numerous commentators and studies have shown
that this just isn't the case. There are too many loopholes, too
much corruption, and too much ingrained custom to ever get the wealthy
minority to pay a reasonable level of taxes sans the substantial
political will necessary to bring about real tax reform. That political
will doesn't exist, and as far as I can tell, won't even when the
Philippines has an elected president. That hasn't made a difference
before.
Second, there are relatively few income taxpayers,
by some counts less than a million. And most of them are not poor.
Neither are they rich. But they are the principal producers - along
with overseas workers and farmers - of economic growth. They are
called the middle class, and are responsible for virtually all non-agrarian
economic value-add - and income taxes collected. And they need a
break.
Now, if all these taxpayers decided to contribute a
relatively measly P50,000 to Pera accounts, theoretically approximately
P50 billion - an amount equivalent to almost six percent of total
market capitalization - would flow into equities, bank deposits,
and government securities. This money would then be used by listed
companies to fuel expansion and development, by banks to lend to
businesses (we hope), and by government perhaps to pay down the
deficit.
Of course, no one knows how many income taxpayers will
set up Pera accounts, but it will be far fewer than every taxpayer.
If 10 percent were to set up Pera accounts, instead of P50 billion,
you'd see just P5 billion in savings. That's a big difference. What
if it's just five percent? So why limit investments to just P50,000?
As usual, the reasoning has to do with very short-term hits in tax
collection (Of course, Congress could require every taxpayer to
set up a Pera account, as the governments in Singapore and Malaysia
do, but that's another argument.).
Long-term of course, tax collections stand to go up
in a number of ways. Way back in 1996, when the Philippines had
one of the fastest growing markets in the world, the Bureau of Internal
Revenue collected P10 billion in transaction taxes alone. A healthy
market will generate other revenues as well, including taxes on
initial public offerings that will invariably increase once the
market revives.
Instead of a maximum investment limit in pesos, legislators
would do well to set the limit as a percentage of reported, taxable
income. That will serve to encourage wealthy taxpayers to report
at least more of their legitimate income, as well as provide higher
savings and investment. A recent revision of the bill provides that
the Secretary of Finance can choose to increase the peso value maximum
investment. But as I've already pointed out, as long as the Department
of Finance is focused on short-term revenue generation, the maximum
is not going to increase.
Short-term squeezing of revenues is not the answer
to the Philippines' present problems. Long-term reform and innovative
ideas - although there are similar precedents throughout Asia and
developed countries - are. And with the smallest stock market, the
smallest banking sector, and one of the poorest governments in Asia,
reform is way overdue in the Philippines. That's why the bill's
champions - Butch Abad re-filed the bill in the current House and
Magsaysay reintroduced his original version in the Senate - continue
to lobby for a version of Pera that will have the impact originally
intended.
They deserve our support.
(Michael Alan Hamlin is the managing director of consultancy
TeamAsia and the author of three books on Asian economies and companies.
His latest book is Marketing Asian Places, of which he is co-author.
His e-mail address is mahamlin@teamasia.com.ph.)
|
