The Department of Finance (DOF) wants to sharpen its teeth against smugglers as the government loses about P231 billion yearly possibly to technical smuggling.
In a recent tax forum, Finance Secretary Carlos G. Dominguez III said the foregone revenue, which was reflected by discrepancies between the import volume reported by local traders and actual figures recorded by their overseas suppliers, accounted for 2 percent of the gross domestic product, highlighting the need to improve customs and the tax systems’ efficiencies.
“In order to bridge this gap, we need to relax [the] bank secrecy [law] for fraud cases, simplify and automate processes, and improve the ability of customs to enforce the law,” Dominguez said.
Also, he said the DOF would send Bureau of Customs (BOC) personnel to exporting countries not only to reconcile the Philippines’ trade data and determine why there were discrepancies but also “to plug possible leakages and allow the government to collect the right amount of taxes.”
The Finance chief said the value gap would also be bridged “once sweeping reforms in tax policy and administration are implemented as part of the DOF-proposed comprehensive tax reform program.”
The first of the six proposed tax policy reform packages, aimed at lowering personal income tax rates while raising consumption taxes, also included tax administration reform measures, such as legislation to relax the bank secrecy laws for tax fraud cases and including tax evasion as a predicate crime to money laundering.
In a statement yesterday, the DOF cited UN Comtrade data showing a P1.8-trillion gap in 2014 between the value of importers’ shipments and those reported by the exporting countries.
Dominguez acknowledged that such gap “could be the result of timing issues and the inclusion and exclusion of particular commodities in reporting, and not outright evidence of smuggling.”
From four main packages initially, the Duterte administration’s tax policy reform program would now have six packages, a bill for the first of which was already submitted to both houses of Congress last Monday.
The first package would adjust tax brackets to correct “income creeping”; reduce the maximum personal income tax rate to 25 percent over time, save for the “ultra rich” who would be slapped a higher 35 percent from 32 percent at present; and shift to a simpler modified gross system.
As lower personal income taxes would result into foregone revenues estimated at P180.3 billion by 2019, the DOF plans to offset and gain P377.3 billion by expanding the VAT base by limiting exemptions to raw food, education and health products and services; increasing the excise slapped on all oil products and indexing them to inflation; as well as jacking up excise on automobiles, save for buses, cargo vans, jeepneys, jeep substitutes, single cab chassis, special purpose vehicles, and trucks.
The government stands to generate a net revenue gain of P197 billion from the first package by 2019.
The DOF was eyeing targeted programs similar to the existing conditional cash transfer program to shield the poor and vulnerable to higher consumption taxes, which would bring about higher prices of goods.