LEGISLATORS will continue to pursue the approval of pending measures aimed at slashing income tax rates as they committed to work more closely with the executive branch in ensuring that foregone revenues resulting from lower income taxes could be compensated.
“The President remains supportive of a genuine, and not a populist, tax reform program. We will be discussing with the DOF (Department of Finance) in the next few weeks the differing points of our proposals so we can come up with a mutually acceptable scheme that will bring about inclusive growth to a targeted set of beneficiaries, especially the salary wage earners,” Marikina Rep. Miro Quimbo, who chairs the House ways and means committee, said in text message last Friday.
The pending bills in Congress aim to lower income tax rates, which Budget Secretary Florencio B. Abad said had the executive branch getting concerned about its potential impact on the country’s fiscal health.
“A lot of the positive views on the Philippines has been due to our faithfulness to fiscal consolidation,” which would be undermined by reducing the tax base, Abad pointed out in an interview with the Inquirer last week.
“[The executive] is definitely concerned about that. We have established our credibility in terms of fiscal consolidation. That’s why the credit-rating upgrades and the investments keep coming. We don’t want to threaten that,” the budget chief said.
The DOF has been pushing for a comprehensive tax reform package, which would drastically ease the burden of income taxpayers while also slapping new or higher taxes on consumption. It includes policy measures entailing legislation as well as tax administration improvements, which the DOF had claimed would lead to a “competitive, equitable and progressive” tax regime.
The package proposes to raise the tax-exempt cap on incomes of individuals and small businesses, while also reducing to about 25 percent the corporate income tax ceiling from 30 percent at present. The DOF has estimated that the government would lose P150 billion in revenues if all income earners of up to P1 million would be exempted from paying taxes.
But the easing of the burden on income taxes would be compensated by either increasing the VAT rate to 14 to 15 percent from the current 12 percent or further expanding its coverage, as well as jacking up the excise tax levied on oil products.
Also part of the package is for legislative to introduce bills that will ease restrictions in the bank secrecy law for tax purposes and make tax evasion a predicate crime.
Internal Revenue Commissioner Kim S. Jacinto-Henares told reporters last week that the government stood to gain up to P300 billion a year if previously foregone revenues from upper-tier, non-fixed income earners who pervasively evade tax payments could be collected.
DOF estimates showed that only 400,000 of the 1.8 million self-employed in the country pay taxes.
Abad said the legislative branch should pursue a comprehensive tax reform and not just the lowering income tax rates.
“If you pass just one dimension of it and forget the other, then it’s no longer a comprehensive tax measure. The administration, especially the President, is reminding the legislative and our allies in Congress that we are jointly responsible for this growth; therefore, we’re also responsible to make sure that we don’t undermine that growth,” Abad said.
“The government really sympathizes with the legislators in their desire to lighten the tax burden on income earners. We recognize for a fact that 90 percent of income tax collections are tax withheld, which means they are the ones shouldering the burden of running society. We have to spread out the burden,” the budget chief added.
As for the Senate, its committee on ways and means “is hoping that the House of Representatives will pass a bill reforming the income taxes and that the executive and legislative can still find mutual ground,” Sen. Sonny Angara said in a text message also on Friday.
“Under the Constitution, all revenue measures must originate from the House of Representatives, which is why the Senate ways and means committee, which I chair, cannot report out any income tax measure. We have to wait for them and we are still pushing and hoping,” Angara added.