Think tank urges massive tax amnesty

The Duterte administration’s plan to implement a massive tax pardon gained support from the country’s tax think tank, which said it would have a positive effect on erring taxpayers.

In a report titled “The Philippine Experience with Tax Amnesties,” state-run National Tax Research Center (NTRC) said tax amnesties “can be introduced in the spirit of reconciliation between the government and citizenry and likewise, as a means of increasing the level of public tax consciousness.”

It said the condonation also allows the taxpayer to start with a clean slate while also helping tax enforcement agencies to generate savings via reduced backlogs and arrears.

In September, Finance Secretary Carlos G. Dominguez III said the government was considering a legislated amnesty for taxpayers with deficiencies in payments of property taxes, estate taxes, regular taxes such as income taxes and VAT. It was also planning to pardon pending tax cases in courts.

Dominguez had said the government was looking at a settlement of a minimum of 40 percent of the total deficiency. Once legislated, there would further be no tax amnesty in the next 25 years.

“If the proposed tax amnesty is pursued, it is important to establish a system that will capture and process information provided in the tax amnesty returns for fiscal policy analysis and future tax policy reforms,” the NTRC said.

The NTRC noted that neighboring Asean countries such as Indonesia, Malaysia and Thailand this year implemented similar programs.

In the Philippines, the government has been granting tax amnesties since 1972. The last was in 2007.

“Although the generation of short-run revenue is often the primary motivation, it is not the only benefit and reason for declaring tax amnesties,” it said.

However, the NTRC pointed out that tax amnesties “are not without costs or demerits.”

For instance, “it is often argued that the revenue generated from tax amnesties is not enough to compensate for their negative impact on post-amnesty voluntary compliance particularly of honest taxpayers who may view the tax amnesty as unfair to them,” the NTRC noted.

It noted that errant taxpayers could depend too much on similar programs in the future. “When this happens, the objective of encouraging noncompliant taxpayers to come out in the open will be defeated.”

“Frequent grants could also affect negatively the efficiency of tax amnesties because of the notion they give to errant taxpayers that the government is not serious in its enforcement program and will therefore just wait for another tax amnesty,” according to the NTRC.