There could be no better teacher on how to avoid paying taxes than a President of the most powerful country in the world. The New York Times reported how President Trump paid only US$750 in two consecutive years, 2016 and 2017. Many of us paid more taxes than someone who owns chains of luxury hotels, golf courses, and businesses throughout the world.
The ways are simple; yet creative - minimize net profit by reporting millions of deductions. Imagine paying US$70,000 for haircuts! The taxpayer can always argue that haircuts are a business -related expense. The host of a popular TV show needed to appear glamorous, and getting a fabulous hairstyle is a must.
And then, there are millions that can be claimed as deductions for the costs of mansions and aircraft even f they are used for personal purposes such as family vacations and personal travels. Events held in mansions can always be presented as conferences, and workshops. Plus, the tax advantages from owning these properties do not end. Real property taxes that are due on these properties are also deductible. And lest we forget, aircraft and assets such as buildings are subject to depreciation. Their wear and tear of which can be spread out over a number of years and deducted as an expense.
Another ploy is to hire relatives who are actual employees of the firm and pay them millions of dollars as consultants. And millions paid to lawyers as professional fees to settle personal cases are also deductible.
But the most ingenious of all is to invest millions of dollars by buying losing firms and claiming their losses as deductions. The tax advantages of their purchase do not end in one year. There is such a beautiful clause in the tax code named "loss carry over" where losses that were not fully deducted in one year can be claimed as expenses in the next so many years.
The Tax Code of the United States provides opportunities for taxpayers to claim a tax credit. One of these is to rehabilitate heritage buildings. A certain percentage of the costs is allowed as tax credits. No tax advantage can be considered small and all opportunities are utilized to the fullest.
So successful were the accountants and lawyers of this President that there were years, 10 years as reported, that no. taxes were paid by him. There was even a year, when a US$P72.9 million tax refund was claimed and was given.
By any government standard, deductions should be related to the conduct of carrying out a taxpayer's business. The Philippine laws are even stricter. In cases where a taxpayer owns multiple businesses, he/she cannot claim an expense in one line of business against another. And, thanks to PM Cesar Virata and Dr. Angel Q. Yoingco, a wage earner cannot claim deductions against his compensation income.
But despite all these safeguards, tax laws are wide open for finding loopholes to avoid taxes. There is a very thin line between activities that are legal, i.e. tax avoidance, and those that are considered a crime, i.e. tax evasion. It would not be farfetched to assume that the feat of President Trump is repeated many times in our country.
Minimizing tax payments is likened to a game. A taxpayer will evade paying taxes if he/she perceives that the probability of being caught is low. The chances of being caught and convicted are close to nil when tax enforcers are no match for topnotch lawyers and accountants. The probability is goes to zero when corruption is traditional and prevalent.
Tax evasion is likewise related to a taxpayer's ethics and tax morale. When accosted by Secretary Clinton on his tax avoidance practices during the Presidential debates, President Trump snapped back and said that makes him smart. Tax avoidance is considered not as an offence but something to brag about.
Convincing people to become good citizens becomes very difficult when instead of being good exemplars, government officials become the opposite. We can only pray that more and more people are guided by Pope Francis:
“It has become evident that those who do not pay taxes do not only commit a felony but also a crime: if there are not enough hospital beds and artificial respirators, it is also their fault.”