Making the tax system simpler, fairer and more efficient
I laud the commitment of Congress to pass the proposed tax reform bill of the Duterte administration.
However, it fails to address the inefficiency of our tax system that has resulted in high tax rates and compliance costs but low compliance from a very narrow taxpayer base. Nevertheless, the Department of Finance (DOF), the Lower House and the Senate did a great job engaging taxpayers in an attempt to reform the more than two-decade-old tax laws.
The Senate started last week its deliberation on the floor. We need to be more critical about the details notwithstanding the fact that much of it underwent several discussions and debates already as the senators plan to pass it before Congress goes on recess.
Further, they plan to quickly convene the bicameral committee to deliberate on the final version as the DOF plans to implement it by January 2018.
After reading the 70-page, 48-section Senate Bill 1592 or the Senate version of the Tax Reform for Acceleration and Inclusion (TRAIN), I must admit it is a lot easier for me to make comments as to criticize is definitely easier than to draft a bill.
For me, a comprehensive tax reform program cannot disregard the effectiveness of revenue agencies, such as the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) that are mandated to assess and collect taxes.
Based on the DOF presentation, the government can still collect at least P231 billion or equivalent of 2 percent of GDP if the P1.8 trillion importation gap or smuggling is resolved by BOC and additional P726 billion or 6.44 percent of GDP if we simplify, address inefficiencies and remove loopholes in BIR.
The three main issues resulting in an inefficient and burdensome tax system that may have been overlooked are as follows:
High tax rates
a. Lowering the income tax-exempt threshold from P250,000 (HB 5636) to P150,000 (SB 1592) is simply adjusting it to keep the minimum wage earners exempted—it will tax the ordinary employees making P21,000 or less;
b. Keeping the highest income tax rate at 32 percent (lower than 35 percent ultra-rich rate of Congress) for those earning P2 million and above is unfair for employees if corporate income tax will be lowered to 25 percent from 30 percent;
c. Lowering estate tax from 20 percent to flat 6 percent is okay but will benefit more the rich, not the poor—preferably, increase the estate tax-exempt threshold to P10 million so individuals who inherit properties will not be burdened by unnecessary tax. Also, cash in banks left by the deceased must be open to withdrawal net of 6 percent creditable withholding tax for estate tax settlement;
d. Lowering donor’s tax from 30 percent or 15 percent to flat 6 percent will further erode the income tax base as more corporations and professionals can choose to claim charitable contributions to reduce their taxable income;
e. Imposing 20 percent tax on passive income like dividends, foreign currency deposits, sale of shares of stocks not publicly listed is one of the best provisions in SB 1592. But how about the exemption granted to long-term deposits?
f. Increasing excise tax on cars is also necessary if we really want to collect from the rich, but I prefer the 200 percent rate originally proposed by DOF;
g. Imposing excise tax on diesel is also necessary as long as the government can provide subsidy to protect the PUVs at least in its first three years of implementation;
h. Imposing excise tax on cosmetic procedure is also a good source of additional revenue—how about imposing tax and penalty on erroneous SALNs of government officials?
i. Instead of imposing tax on sweetened beverages as a health measure, why don’t we just increase tax on alcoholic beverages and cigarettes?
j. How about increasing tax on mining, aside from the P10 increase per metric ton on coal and coke?
High compliance costs
a. Simplified bookkeeping and tax compliance is one of the best amendments in the tax code—incumbent BIR Commissioner Ceasar Dulay is committed to the continuous review of all BIR documentary requirements and processes to simplify and make compliance easier and less costly;
b. Make manual bookkeeping optional since almost all businesses are using computers and encoding their sales and purchases via spreadsheet
c. Accredit independent software developers and accounting system providers, instead of requiring every taxpayer to have their accounting software accredited by BIR
d. Appropriate more budget for BIR and BOC to undertake full automation, professional trainings on risk-based computerized audit procedures;
e. Implement long-overdue proposal to exempt BIR and BOC personnel from salary standardization to hire more competent and honest lawyers and accountants, not just additional employees;
Low compliance, narrow taxpayer base
a. Mandatory TIN registration for all those availing themselves of government services including students of state universities or graduating students in general
b. Remove all other VAT exemptions outside of agriculture, health, banks, education and purchase of medicines by senior citizens and PWDs. In lieu of the VAT exemptions given to seniors and PWDs, why not provide vouchers or cash cards for easy monitoring?
c. Mandatory annual ITR/ tax clearance for PRC license renewal including lawyers to improve voluntary compliance among professionals;
d. Allow online access of personal tax information, especially for employees to verity taxes withheld from their compensation;
e. Implement shared database system among government agencies and its instrumentalities to make sure BIR, BOC, SEC, LGUs, SSS, Philhealth, etc. have access to same taxpayer information—individual or corporations;
f. Earmarking is necessary but it’s more important for us taxpayers to see and feel the benefits of the taxes we pay, not just mere promises.
Tax policy reforms are both urgent and important but they have to be supported with well-funded administrative reforms and properly implemented budget reforms for us to see where our taxes really go.
BIR, in partnership with CSR Philippines and supported by the Philippine Business Groups and Chambers of Commerce, have launched the Seal Of Honesty (SOH) Certification Program which aims to increase voluntary compliance without penalties and compromises. Help us spread the news, visit www.sealofhonesty.ph
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