Flat tax rate eyed

THE GOVERNMENT’S tax research arm is pushing for the imposition of a flat rate on self-employed individuals and professionals to increase collections, a proposal that the Bureau of Internal Revenue (BIR) is looking into.

In a report titled “Income Tax Profile of Self-Employed Individuals and Professionals,” the National Tax Research Center (NTRC) noted that despite placing self-employed individuals and professionals under “stricter scrutiny” by the BIR—mainly through a name-and-shame campaign targeted at professions with low tax compliance, this group of taxpayers continued to account for a small share in the total individual income tax collection.

In the last decade, self-employed individuals and professionals accounted for just 14 percent, including withholding tax at source, of total collection, whereas the bigger share of 86 percent came from compensation income earners.

“NTRC’s tax gap estimates in 2010-2014 showed that there was, on the average, a 55-percent tax leakage among this so-called ‘hard-to-tax’ group of taxpayers,” it added.

Based on 2013 data reviewed by the NTRC, one of every three self-employed individuals and professionals who filed income tax returns that year incurred net loss or had zero net taxable income due to “excessive” claims of deductions as well as under declaration of incomes.

The remaining two-thirds of self-employed individuals and professionals who reported net taxable income, meanwhile, “did not sufficiently contribute to tax collection as indicated by their low effective tax rates … also due to overstated deductions or understated income,” the NTRC said.

In 2013, the effective tax rates, or the ratio of tax due to sales and receipts, stood at only 1.55 percent for single proprietors and 10.46 percent in the case of professionals.

In this regard, the NTRC pitched the following reforms in the taxation of self-employed individuals and professionals, which had been filed in Congress: Imposition of a flat rate on small self-employed individuals and professionals, similar to those of corporations; or provision for an optional standard deduction that would no longer require such taxpayers to keep books of accounts.

“Also, attention should be focused on high profile self-employed individuals and professionals,” the NTRC added.

Sought for comment, Internal Revenue Commissioner Caesar R. Dulay told the Inquirer that the NTRC’s proposals “will be studied” by the BIR, in coordination with the Department of Finance.