HOME    geronimo@ tax Articles    Today Articles     Lectures & Presentations    News & Views     Law and Jurisprudence

Admistrative Issuance    Trust Products and Practice    About the Guru     Links    Email Feedback

Bakit di totohanin?

We hope, against the evidence of contrary events, the government is not embarking on a policy of appeasement. Recently, it was Vitaliano Nanagas. Lani, who undoubtedly is not a media personality but is just as undeniably an unquestioned top notch financial executive, was simply doing his job. No way should he have been asked to step down simply because his "management style" is not to the liking of the SSS employees. Now, it is a rate increase of the withholding tax on entertainers. Papers report that the government is once again prepared to retreat and impose the additional withholding rate of 10 percent, on top of the old 10 percent withholding, only on entertainers earning annually P720,000 and above.

Buckling down so easily, in the case Revenue Regulations No. 6-2001, does not look like a good idea. If the government gives in, it will give itself a black eye and at the same time miss an opportunity to ferret out, once and for all, the correct level of taxes that should be paid by the entertainment industry.

Definitely, conceding without getting any concession in return will give the general impression that our finance authorities, presumably in a hurried effort to increase collection to meet the burgeoning needs of government, did a haphazard job of determining whose withholding rates needed revision and whose did not. I am certain that impression is not correct. A cursory examination of the impositions of new withholding, of revised rates, and of the acceleration of payments indicate, to the trained eye, a reason approach to tax collection based on empirical evidence. What will stop some other noisy group from invoking the concessions made to the entertainment industry and demanding tiering, if not the outright abolition, of their own withholding tax?

But worse than giving the wrong impression is the prospect that the government will lose a golden opportunity to bring out into the open the true tax picture of the entertainment industry’s tax liability. Widespread is the belief that even at present rates, producers convince with talents, to report lower fees. Now is the time to the make-believe and bring out the truth.

Certainly, there is something more than meets the eye when the payors of the income protest against the withholding of a tax that falls on the payees. The loudest howl against Rev. Reg. No. 6-2001 came from producers and not from the talents. "Producers will be very much affected," June Rufino was reported by another broad sheet to have said, " since they advance the withholding tax and this will affect their cash flow". Apparently, it is industry practice, reportedly admitted by lawyer Dennis Manicad, for producers to advance the withholding tax.

Somehow, I fail to shed a tear for the protesting producers. Prescinding from the question of whether or not producers can afford to pay taxes directly imposed on them, producers must realize that they are in no different position than millions of employers in the country who must every payday withhold for the government the tax due on the salaries and wages of their employees. If producers decide to absorb the withholding tax or to pass it on to the talents, that is their business decision and a matter of negotiation between producer and talents. Tax on income earned by the talents must be paid; the government ought not to be interested, nor get embroiled, in the issue of whether it is the producer or the talent who eventually bears the economic burden of the tax.

I am more sympathetic to the voice of the talents themselves who feel that the 20 percent withholding tax is too onerous, particularly those talents whose engagements are seasonal, if not unpredictably sporadic. However, for them I have an observation and a suggestion.

Making a living in the entertainment industry as a talent, for most, is not a matter of economic necessity. It is a matter of choice and inclination. They are very unlike the many minimum wage earners who must stick it out with their employers in order to live. Those who claim that they are doing what they are doing in the industry to support a destitute family, send a brother to school, earn money to pay the medical bills of mother, are ordinarily not those who earn a pittance. On the contrary, there appears to be a subtle relation of direct proportion between claims to poverty and the earnings of our stars. In short, those who are economically hurt by the 100 percent increase in withholding tax are those who are talents precisely because they choose to make a living in that way.

Undoubtedly, a general rule that is fair to most could in certain cases be most unkind to a few. To address this phenomenon, which is found in taxation as well as in the vagaries of the weather, I suggest a qualification process to determine who ought to be exempted from the increase of 10 percent withholding. Let anyone who claims that he or she earns less than a fixed amount, say the P720,000 annual income as contemplated by the government, prove qualification for the partial exemption by submitting to the Bureau of Internal Revenue two sets of documents. First, copies of their own income tax returns filed for the last three years. And second, written consent and authorization signed by both talent and producers who made the payments during those years to both verify the correctness of the amounts reported in the talent’s return as well as examine the books of account of the producers to determine whether the producers themselves have paid their correct taxes. This process is nothing new. Revenue Regulation No. 6-2001 itself imposes a similar one on sellers of land who wish to be classified as habitually engaged in the real estate business.

Getting the producers to open their books should not meet vociferous resistance. After all, the producers admirably played the role of knights in shinning armor quick to defend the hapless talents from the tax dragon, they should be just as willing to prove that their righteousness is more than celluloid.

My gut feel is that there will be very few talents who would come forward for such a qualification process. The players, both star and bit, of entertainment industry, I predict, would just as well internally manage, as they should, the absorption of the withholding tax burden and simply wait, for a change in weather that could once more see to one of their kind living in Malacanang.