Comprehensive tax reform pushed

MANILA, Philippines–Tax managers have submitted to Congress its comprehensive tax reform proposal, which includes lowering the maximum income tax rate to 30 percent while also increasing to P300,000 the tax-exempt threshold.

In a statement, the Tax Management Association of the Philippines (TMAP) said it had filed with the respective ways and means committees of the House of Representatives and the Senate its recommendations that have the “overall objective of ensuring greater fairness and equity in the tax system, and simplifying the system to enhance compliance, expand the base and, consequently, increase government revenue collections.”

The first of TMAP’s proposals is an all-inclusive tax-exempt annual income threshold of P300,000. At present, a tax base of P10,000 and less is already slapped a 5-percent tax rate.

For tax bases over P300,000, TMAP is proposing a rate of 10 percent for those earning more than P300,000 to P500,000 a year; 20-percent annual rate for those earning more than P500,000 up to P1 million; 25-percent rate for annual income worth more than P1 million to P2.5 million, and 30-percent for those getting more than P2.5 million a year.

According to TMAP, such an income tax structure was “simplified yet progressive” as it would adjust the tax base to address the “bracket creep phenomenon.”

Reducing the top statutory rate to 30 percent from 32 percent at present would also make it at par with the prevailing corporate tax rate.

The unified P300,000 tax-exempt threshold would also simplify the various tax deductions and exemptions while ensuring that workers in the country would be competitive in light of the expected increased workforce mobility when the Asean economic community goes in full swing starting the end of this year, TMAP said.

Another proposal of TMAP was to limit the tax-exempt “de minimis” benefits only to “occasional benefits, the value of which and the frequency with which it is provided is so small as to make accounting for it unreasonable or impractical,” and exclude “disguised compensation” such as cash allowances.

“TMAP also recommends some changes in the fringe benefits tax system to remove the difference in tax treatment between managers/supervisors and rank-and-file employees,” it added.

For business income earners and professionals, TMAP is recommending a simplified system whose income tax base would use the optional standard deduction method while also putting in place a “presumptive VAT (value-added tax) regime for taxpayers transitioning from VAT-exempt to up to P10 million in annual sales” as well as a “special withholding VAT regime for individual taxpayers with sales to VAT-registered corporate clients.”

TMAP is also pushing for simplified bookkeeping and invoicing/receipting requirements and also a grant of tax amnesty to previously erring taxpayers.

Further, “TMAP proposes an increase in capital gains tax rates at the rates of 10 percent for the first P1 million and 15 percent in excess of P1 million” in a bid to bring the rates closer to the effective personal income tax rates and make the rates competitive in Asean where rates are within the 10-20 percent range.

“With the formal submission of our proposals, we’d like to help fast-track the discussion and approval of meaningful tax reform measures in both houses of Congress within the first six months of this year. We are hopeful that our lawmakers will decisively and swiftly act on them, just like how they did it with the increase in tax-exempt bonuses,” TMAP president Rina Lorena R. Manuel said.