A marginal tax for ultra-rich to uplift poor (Part 2 of 3)

In Part 1, we proposed a 3% wealth tax to end Philippine poverty, noting that it would be reasonable given the wealth and profits of the country’s richest. Moreover, a fair wealth tax schedule can be adopted following the concentration of wealth in the country. In this part, we seek to demonstrate that a wealth tax is feasible by showing how to address technical and political obstacles.1

As with any tax, a primary obstacle is tax evasion. This can be mitigated by knowing how much exactly a rich individual owes the government.

Unlike income, the government has little information on the individual wealth of the richest families, except perhaps the non-triangulated data on the ownership of firms available to the Securities and Exchange Commission (SEC), and the still-messy cadastral data from the Land Registration Authority (LRA). We usually rely on private lists such as that published yearly by Forbes magazine, which may not be able to capture true wealth accurately, limited as they are by resources.

One way to overcome this handicap is to require everyone with a net income (as reflected in the Income Tax Return or ITR) above a certain amount to file a Statement of Assets, Liabilities, and Net worth (SALN), similar to those required of government employees. We can assume a threshold of capital-to-income ratio of 5:1, meaning, given the wealth tax schedule we previously proposed, citizens with an annual income of ₱10 million will be assumed to own ₱50 million and therefore asked to submit a SALN. If the SALN reports a net worth that reaches the threshold of ₱50 million, then the individual will now be required to pay a wealth tax.

In addition, given the volatility of valuated wealth, we also propose the use of the 12-month average of net worth as a basis for the wealth tax, rather than a mere snapshot before the deadline. This is also to prevent actions to artificially deflates one’s net worth just before the tax assessment period.

Given the predisposition to tax avoidance, SALN alone, even if audited, will not be sufficient. To augment the state’s capacity to ascertain the true net worth of individuals as declared in their SALNs, agents of government, specifically of the Bureau of Internal Revenue (BIR), must have full, unimpeded access to the information from the banking, stock exchange, and other securities exchange systems. This requires the amendment of Sections 22 and 33 of Republic Act 1405, or the Bank Secrecy Law.

A wealth tax also risks capital flight. To address this, some countries with a wealth tax have also opted to impose a 25% “exit tax”. We can also do so for those who will bring capital out of the country by renouncing their Filipino citizenship,4 provided that the net worth of the person is within our wealth tax brackets. There would be few problems with regards to real property and physical investments which cannot be “exported” and can be expropriated. The BIR can confiscate properties in lieu of tax payments. The exit tax targets financial capital.

The possibility of estate planning, or outright tax avoidance, also requires a response, given that the rich conduct informal dealings with relatives and employees to hide their assets, or to reduce their position in the wealth tax brackets. These dealings, however, can only be made through transactions such as gifts, inheritance, or other transfers mediated by the financial system.

In our proposal, assuming full transparency and strong surveillance over all financial transactions and legal bequests, the state can treat such transfers as “exit” from the asset and charge a 25% levy. Note that this effectively reverses the reduction of the estate tax in TRAIN 1, from 20% to 6%.5

But the only way to sustainably mitigate the risk of “capital flight” is to promote international cooperation on taxation wherein all countries of the world agree on a common wealth tax rate, as proposed by French economist Thomas Piketty.6 Otherwise, capital markets will attempt to punish countries that will attempt to impose a wealth tax, similar to what commodity markets do to countries that refuse to participate in free trade agreements.

As worldwide movements push for an end to austerity, the Philippine government should support a global call for a common wealth tax. More urgently, we can call for the creation of an ASEAN Wealth Tax Union, which will also be a negotiating forum for a regional-level wealth tax schedule appropriate to the national level of capital and investment flows. This is with the end goal of eventually securing intra-regional wealth tax agreements.

In the meantime, the Philippines can push for the automatic sharing of all information on financial transactions as a conditionality for participating in all present and future economic agreements, especially the ones on trade.7 This information will go a long way in the correct assessment of the net worth of the economic elite, and will strengthen the case of the governments of the world in imposing a common wealth tax.

James Miraflor is a fellow at LEARN.

1Of course, this is with the understanding that political balance of forces is such that citizens can pressure Congress to enact a wealth tax, even as the vast majority of representatives will likely be affected by levies on huge assets. Excluding the outright exemption of politicians to wealth taxes (an untenable proposal), this isn’t something that can be addressed by the wealth tax design.
2“All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.”
3“It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits.”
4Sen. Warren proposes 40% in her own wealth tax proposal.
5This has actually resulted in foregone revenues of hundreds of billions of pesos, since the death of Henry Sy, Sr., George Ty, John Gokongwei, Jr., Lucio Tan, Jr., and Danding Cojuangco all conveniently falling after the effectivity of RA 10963.
6He proposed a wealth tax such that the rate of return on wealth $r$, is less than or equal to the growth rate $g$. This is to neutralize the powerful economic forces favoring accumulation.
7The Ricardian theory of comparative advantage rests on the assumption of capital immobility across nations, as capital is reallocated within the nation to allow for the restructuring in the allocation of factors. Without capital immobility, capital can simply leave countries which won’t have any resources left to reallocate. A common wealth tax reduces capital mobility, allowing nations to build sectors in a strategic manner.

A marginal tax for ultra-rich to uplift poor (Part 1 of 3)

How much would it take to end grinding poverty in the Philippines? And where can funding come from? This three-part series proposes a marginal tax rate for the few ultra-rich to lift out of poverty millions of Filipinos.

So we begin with the question, how rich is the Philippine elite? Using the Credit Suisse Global Wealth Databook 20211 as guide, we have, as of 2020, a total of 626 individuals (about 10 busloads of people) have a combined wealth of ₱7.48 trillion. That’s a bit more than 7 followed by 12 zeroes. See Table 1.

Table 1. Estimated total wealth by wealth range

Wealth range Wealthy people Assumed average Sub-total
₱2.5B to ₱5B 345 ₱3.75B ₱1.294T
₱5B to ₱25B 217 ₱15B ₱3.355T
₱25B up* 34* ₱2.93T*
Total 626 ₱7.48T
*From Forbes 2020 data.


What form does this wealth take? Stock investments and securities. As of end-2021, the country’s Stock Market Capitalization is already at ₱18.08 trillion.2 Meanwhile, other financial securities are now at ₱573.89 billion. Combined, total financial wealth is now at ₱18.65 trillion.3 From the above table, less than a thousand rich people would have owned at least a third of these stock investments and securities.

In contrast, as of the first semester of 2021, 23.7% of Filipinos remain poor, that is, 21.14 million souls with less than ₱400 per day. 9.9% or 10.94 million don’t even have enough to meet daily nutritional needs.

If we choose to simply hand money to poor citizens equal to the poverty threshold, how much would it cost? ₱687 billion, or 3.7% of the total financial wealth. If the money we hand over depends on how poor they are, it would cost Philippine society even less: ₱155 billion,4 or 0.83% of the total financial wealth.

So how much would it take to end poverty? At least 0.83% of the country’s financial wealth, at most 3.7%.
Moreover, Stock Market Capitalization (SMC) is growing. Its total pre-pandemic 5-year average of annual growth in is still 3.88% as of 2020; the average growth since 1995, 13.2%.

The stock market has since recovered from its pandemic record low, and the average growth rate in securities other than shares is 13.36%.

Given the obscene growths in both wealth and poverty, isn’t a tax on wealth reasonable?

A flat annual 3% wealth tax levied on financial capital owners with ₱18.65 trillion will already yield ₱559.65 billion. Assuming that capital owners would take the payments for wealth tax not from the capital stock but from profits, the total wealth tax would be less than 5% of the gross operating surplus as of 2020 (which is about ₱5.77 trillion).5 But this would be enough to end poverty.

Of course, capitalists can argue that the gross surplus serves multiple things – recover the cost of capital (or replace depreciated capital), or more importantly, reinvest them. This argument does not hold water if we dig deeper into the consolidated accounts.

Another argument for a wealth tax is the massive net operating surplus (gross operating surplus less "consumption of fixed capital” or capital depreciation), which as of 2018 is ₱7.9 trillion (or 45.4% of GDP, versus 36.9% for wages).6 Meanwhile, the Gross Fixed Capital Formation (GFCF) of 2019 is at ₱4.96 trillion, which, if deducted from the net operating surplus of 2018 would still yield for capital owners a sum of ₱2.97 trillion – meaning, profits that became net earnings of capitalists have exceeded profits that went to investments by as much as 68.6%.7

Of course, since the distribution of wealth is highly unequal, we can even distribute the burden among capital owners as follows (with the proposed tax schedule of $r_{n+1}=\dfrac{r_n}{2}$, $r_0=5\%$, where $r_n$ is the interest of bracket $n$):

Table 2. Proposed wealth tax schedule

Credit Suisse Global Data Book8 Wealth Tax Calculations
Range (Php) Share of population Number Average wealth (million Php) Total wealth (billion Php) Proposed wealth tax rate Projected wealth tax yield (billion Php)
500k – 5m 15% 9,910,080 2.75 27,252.72 0% 0
5m – 50m 2% 1,339,200 27.5 36,828.00 0% 0
50m – 250m 0.11% 70,140 150 10,521.00 0.15625% 16.44
250m – 500m 0.01% 6,363 375 2,386.13 0.3125% 7.46
500m – 2.5b 0.01% 3,872 1,500 5,808.00 0.625% 36.30
500m – 2.5b 0.01% 3,872 1,500 5,808.00 0.625% 36.30
2.5b – 5b 0% 345 3,750 1,293.75 1.25% 16.17
5b – 25b 0% 217 15,000 3,255.00 2.5% 81.38
25b+ 0% 34 212,500 7,225.00 5% 361.25
Total 518.99


If we decide to impose a wealth tax on those with wealth worth P500,000 to P50 million brackets going by our wealth tax rate schedule (where is the rate schedule?), then the total wealth tax yield will be ₱558.41 billion, which is almost equal to the yield under a flat rate of 3%.9

A 3% tax rate is fair, if not a bit low.

James Miraflor is a fellow at LEARN.

1See www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-report-2021-en.pdf
2See www.bsp.gov.ph/statistics/OtherRealSectorAccounts/Table%2043.pdf.
3See www.bsp.gov.ph/Statistics/Financial%20System%20Accounts/Table%2018.pdf.
4We multiply the poverty gap with the poverty threshold and the number of individuals to get this amount. See the data here.
5See the latest release of the Consolidated Accounts here .
6This is also from the Consolidated Accounts. 2018 is the latest year when the data on net operating is available. The latest release only includes data on gross operating surplus.
7Divide GFCF by the net operating surplus then deduct 100%.
8Even if the Credit Suisse Global Data Book reports total wealth and not just financial wealth, it is reasonable to assume that the bulk of the wealth is in financial form, especially at the richest segments.
9Note that 3% is close to the rate proposed by Sen. Elizabeth Warren and Sen. Bernie Sanders for a US wealth tax proposal.

Minimal fee from riders, govt compensating drivers, operators: a more viable service contracting model for public transport

Designed properly and regulated using proper data on the operations and expenses of all public utility vehicles (PUVs) plying in a particular route, government service contracting can precisely compensate for extraordinary fuel costs incurred in-between fare adjustments. This is similar to bills sent by public utilities in the power sector that include belated recoveries due to higher-than-expected fuel/operations of generation plants, among other items.

The first Department of Transportation (DoTR) order implementing service contracting was issued in September 2020 using funds made available from Bayanihan I (RA 11494). It was meant to support operators and drivers to comply with COVID-19 physical distancing requirements and its corresponding costs that they had no way to recover, from 2020 to 2021. Also, only a very small number of the PUV fleets could be mobilized because of the quarantines and people’s fear of being infected, which meant that PUV operators had no income with which to pay for fixed maintenance, rentals, and utility expenses.

In 2022 the rationale for service contracting has changed as conditions started to normalize and as PUVs are allowed to take on full loads. By mid-year the service-contracting budget was almost fully used up, though excess revenues from VAT on expensive oil can be used to provide additional budget. Service contracts were used to provide free rides, and in a second modality, to add to the revenues of PUVs in cases where fares collected do not suffice to call forth a sufficient number of PUVs.

Service contracting is a mechanism designed to enable fair returns for a limited number of drivers and operators, or social amelioration, though this is also the objective of Pantawid Pasada. But in addition, through LTFRB MC 2022-031 which implements the 2022 GAA fund of P7 billion, service contracting is a tool that can be used to call forth additional PUV services during particular times within particular routes, and also, to improve service standards. If designed properly and with the regulator having digital information on the operations and expenses for different PUVs on the roads, a service contract can also be a mechanism that can precisely compensate for extraordinary fuel costs incurred in-between fare adjustments. This would not be too different from bills sent by public utilities in the power sector that include belated recoveries due to higher-than-expected fuel/operations of generation plants, among other items.

The simplest arrangement that can theoretically assure all the objectives above are met is if the government would collect all the fares paid by the commuters and then compensate the drivers and operators according to a service contract awarded through bidding. If the fares are not enough to cover the costs, then the government could fill the deficiency using revenues from general taxes, or perhaps from road users’ taxes.

Alternatively, the drivers and operators in a particular route, e.g., the PUV cooperative can collect the fare and the government can then cover the expenses that the fares cannot pay for. Regulated fares meant to encourage ordinary people to afford them and so that PUVs is preferred over using private vehicles are typically not enough to cover the expenses of operation.

If there were not enough PUVs on certain routes during certain times, say, because there were not enough passengers going towards a terminal, but far too many waiting in line to catch a ride home, the government can require more vehicles to be on standby to be used to raise the frequency of PUVs going to the busy terminals during peak hours, even if the vehicles would be idle during off-peak hours and empty going to designated areas.

Such higher service levels would entail higher costs, so well-defined price adjustment mechanisms need to be in place. If the contractor and government cannot come to an agreement on the proper compensation for amendments to the service contract—the operators (joint venture project companies) can come and go but the employees or their coops can conceivably remain as part of area-wide joint ventures that can join the new project company and contract with the government.

In the context of the PUV modernization program in the Philippines, Sunio et al (2022) mention without providing the reference, that the Land Transportation Franchising and Regulatory Board
(LTFRB) and the DOTR imagine that the new route assignments with only one or two consolidated operators can subsequently become the service contractors, and either the LGU or a metropolitan corporation composed of different LGUs can contract and pay for the services.

This proposal might work for hyper-local routes. In the case of routes connected to major toll roads, ports or other high capacity transit hubs, it makes sense for the national government to also play a part in designing and financing the service contracts, and perhaps also in promising to undertake actions that will ensure efficient operations: for example through the provision of dedicated lanes and the provision of well-designed loading stations and fare collection systems. The national government would be interested in maximizing the ridership and revenues for example of trains financed through loans—to entice people to shift to public transport and use not only trains but also buses and jeeps going to intended destination on time and enough to rival private cars in the convenience they offer.

As in many cases of actually existing service contracting arrangements in other countries such as Brazil, Germany, Malta, Russia, the USA and others, there is evidence that the right contractual design and terms cannot be hit upon on the first try. Incremental improvements and even improvisation would seem to be the rule rather than the exception during the early stages. The prioritization of routes to be given service contracts, the service dimensions and levels, the compensation methods, the manner of renegotiation of contract terms and the assignment of risked must evolve gradually from simple towards more sophisticated forms over time — as the gathering of information on costs and performance becomes automated, ridership hopefully shifts to more public modes with the volume of private vehicles on the road reduced, and as public regulatory capacity improves.

The situation in the Philippines gets further complicated by the transitions being induced by the PUV modernization program. To respond, for example, to the clamor of operators and drivers for greater subsidies to enable decent take home pays - the transition towards service contracting might introduce a gradual increase in the proportion of modern jeeps in the service contractor’s fleet and the compensation can include a capital subsidy (for which the government and or commuters will be entitled to returns or shares in the service contracting joint venture company).

Other considerations that deserve further investigation and maybe experimentation can include increases in road users fees so that the DOTR and the LGUs can have a sustained source of revenues for the service contracts. A law may be passed to provide the resources and the predictability the PPP service contracting arrangements will require.


Jude Esguerra is a fellow at LEARN.


Land Transportation Franchising and Regulatory Board. (2021). LFTRB MC 2022-031 Implementing Guidelines of the PUV Service Contracting Program under the General Appropriations Act of 2022.

Sunio, V., W.J. Li, J. Pontawe, A. Dizon, J.B. Valderrama, A. Robang. (2022). "Service contracting as a policy response for public transport recovery during the Covid-19 Pandemic: A preliminary evaluation." Transportation Research Interdisciplinary Perspectives. Vol 13, March 2022. 100559.