Finance chief eyes tax overhaul
An overhaul of the country’s entire tax structure may be overdue, according to Finance Secretary Cesar V. Purisima.
This comes as authorities struggle to meet monthly revenue targets due to established leakages that promote inequity by sourcing most of the state’s money from fixed salary earners.
Finance authorities argue that several parts of the law need amending, among them the provision on lower courts’ intervention in tax cases.
Incentives that allow companies to dodge the country’s above-average corporate tax rate also need to be reviewed.
Bills seeking to bring down income taxes for salaried workers are being deliberated in Congress.
On the other side of the fence, administration officials have asked for several new measures that would raise revenues by imposing higher taxes on mining companies and help modernize the customs bureau to minimize smuggling.
“We’re not just talking about adjusting rates. We want a holistic approach,” Purisima told reporters this month.
“It’s like we’re a building. These proposals want to take one pillar out. But first we have to see if the whole structure will crumble,” he said.
The Bureaus of Internal Revenue and Customs have struggled to meet monthly targets this year.
Officials say these goals were set at ambitious levels, but the administration’s plan to sustain recent increases in the budgets for infrastructure, education and healthcare remain contingent on revenue targets being met.
This year, the government hopes to collect P1.86 trillion in taxes and other revenues, up from last year’s P1.51 trillion.
Much of this burden lies with the BIR, which on its own hopes to get P1.46 trillion in revenues.
So far in 2014, the BIR has missed all of its revenue targets save for one month: July.
Revenues, at P119.94 billion, were up 19.82 percent. The target for the month was exceeded by just 0.05 percent.
Internal Revenue Commissioner Kim Henares admits that the BIR’s own resources and manpower have been strained significantly by the high goals.
“The investment we put in to collect this much is our health. A lot of our people are getting sick, but we still have to do our jobs,” she said.
Purisima this month said Congress should consider exempting the BIR from the Salary Standardization Law for all public employees.
This would give the BIR the ability to offer higher salaries to its employees, which would let it hire better people, as well as fire underperformers more easily.
The Finance chief stresses the importance of protecting the country’s revenue base.
He said the country’s tax collections still hover around the equivalent of 13 percent of gross domestic product (GDP), below the average of 16 percent for middle income countries.
Increasing revenues would be vital if the state is to sustain spending increases in key areas.
For instance, this year’s budget for education is 95 percent higher than it was in 2010.
Health, the difference is 197 percent, and for Public Works, it’s at 57 percent.
By 2016, the government wants to increase spending on infrastructure to the equivalent of 5 percent of GDP, more than double the 1.8 percent spent in 2010.
One of the measures the DOF wants pushed in Congress is the rationalization of fiscal incentives for companies.
Under the current regime, companies—even already-profitable ones—are able to extend tax breaks indefinitely.
New taxes for mining companies that would give the government its “equitable share” of revenues from minerals extracted from the earth are also on the table.
Purisima said opening up the country’s Internal Revenue Code would show several more areas where taxes could be adjusted; lowered in some areas, increased in others.
He calls recent proposals to lower corporate and individual income taxes as “piecemeal” moves that would erode the state’s revenue base—and in effect jeopardize its ability to deliver public services.
Sen. Sonny Angara last March filed a bill to lower individual income taxes from a maximum of 32 percent to 25 percent.
This would bring income taxes in the Philippines closer to regional standards, making the country’s workforce more competitive.
The measure also calls for adjustments in tax brackets.
The Tax Management Association of the Philippines (TMAP), for its part, has called for a reduction in corporate income taxes, which currently stand at a flat 30 percent.
Like individual taxes, corporate taxes in the country are the highest in the region.
Both moves have gained the support of the World Bank, which earlier this year said the money gained from rationalized corporate incentives would offset the loss from lower income taxes.
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