One condition for tax cut laid down

MANILA, Philippines—The government may finally move to lower income taxes for millions of ordinary employees who have no control over how much of their monthly salaries go to state coffers—on one condition.

Before income taxes are lowered, self-employed professionals must first be more honest about how much money they make, and by extension, pay the right amount of taxes every year.

“We can hope to reduce income taxes in the future and maybe make it flatter with transaction taxes. But to do that, you have to make sure your tax base is broad enough,” Finance Secretary Cesar V. Purisima said Thursday.

At the sidelines of the pre-event briefing for next week’s World Economic Forum (WEF) for East Asia, Purisima said as much as P300 billion a year—the equivalent of 3 percent of gross domestic product (GDP)—could still be collected if lawyers, doctors, and accountants, among others, were more honest about their earnings.

Purisima dismissed calls from multilateral lenders such as the World Bank and the International Monetary Fund, which both said the government should look at raising taxes to support the Aquino administration’s expensive plans to build more roads, bridges and other infrastructure around the country.

At the start of his term in 2010, President Aquino made a populist pledge to not support any hike in taxes that would have widespread effects on the public. In terms of tax policy reform, the government has focused on select measures such as raising excise taxes and increasing the state’s share in revenue from extractive sectors like mining.

Purisima, who heads the Cabinet’s economic team, said the state’s main thrust would be improving tax administration or compliance with existing tax laws that, in the past, were easily skirted.

“We are sticking to what the President said that we should close the holes in tax administration, so that we make sure we maximize that first before really focusing on the tax policies,” he said.