DOF urges Congress to ease bank secrecy law to aid tax probe

The comprehensive tax reform bill is in the court of Congress, finance officials said, as they sought legislators’ help to make tax evasion a predicate crime, alongside easing restrictions in the bank secrecy law for tax purposes.

During separate briefings on the proposed 2016 budget at the House of Representatives last Monday and at the Senate on Wednesday, Finance Secretary Cesar V. Purisima pointed out that the Philippines was one of only three countries where there remains bank secrecy for tax purposes.

The Philippines is also one of just two countries under whose anti-money laundering law tax evasion is not a predicate crime.

On the Anti-Money Laundering Council website, predicate crime was defined as an unlawful activity that generates dirty money or property.

Purisima said the lack of reforms hampered the ability of the Bureau of Internal Revenue (BIR) to collect more taxes.

“Tax evasion is still a pervasive issue, especially among upper tier personal income taxpayers,” he told senators, noting that there remained many fixed-income earners such as actors and actresses, basketball players, doctors, designers, engineers, entrepreneurs and lawyers, among other professionals, who do not pay the right taxes.

“We need the ability to create fear among tax evaders,” he added.

The Finance chief said part of the Department of Finance’s (DOF) proposed comprehensive tax reform package being pitched to President Aquino were both tax and non-tax measures that would lead to a tax structure that is “equitable, progressive and competitive.”

The comprehensive tax reform package proposes to drastically ease the burden on income tax while also slapping new or higher taxes on consumption.

It includes policy measures that will entail legislation, as well as tax administration improvements.

For BIR Commissioner Kim S. Jacinto-Henares, much of the work to be done to put in place comprehensive tax reform would be in Congress.

“Whether or not [comprehensive tax reform] will push through or not, it would depend on whether Congress and Senate will repeal the bank secrecy law for tax evasion, [as well as] include tax evasion as a predicate crime under anti-money laundering,” Henares said at the lower house.

Henares cited that the government has to strike a balance between revenue collection and transparency.

“If [the tax regime] is not transparent, we cannot collect more revenues. Otherwise, we may have to increase other taxes drastically,” she explained.

The DOF’s tax reform package proposes to raise the tax-exempt cap on incomes of individuals and small businesses, while also reducing the corporate income tax ceiling.

But the easing of burden on income taxes would be compensated by possibly increasing the value-added tax (VAT) to 14 percent from the current 12 percent, and jacking up the excise tax levied on oil products.

Purisima said the DOF was looking at whether the VAT should be raised or its coverage be expanded.

“At present, the 12-percent VAT [contributes] only over 2 percent in GDP [gross domestic product]; ideally it should be closer to 12 percent,” he said.–Ben O. de Vera