Both the House of the Representatives and the Senate are on marathon hearings to pass two tax amnesty bills—an estate tax amnesty and a general tax amnesty covering all taxes—both bills being a component of Package 1B, which will complete Package 1 of the TRAIN (Tax Reform for Acceleration and Inclusion) Act. Both bills are expected to be passed within the first quarter of this year, 2018.
The estate tax amnesty, I heard, is almost a done deal and is noncontroversial. It will complement the reforms introduced in TRAIN 1, easing up the estate tax by reducing it to 6 percent (from a high of 20 percent), at the same time increasing allowable deductions and exemptions, such as the standard deduction that was increased from P1 million to P5 million, and family home exemption from P1 million to P10 million. But since TRAIN 1 became effective only on Jan. 1 of this year, only deaths beginning this year will benefit from the lowered estate tax, leaving still in anguish those left behind by their decedents who died prior to 2018. Thus, the need for amnesty.
As of my latest information, the estate tax amnesty will offer a condonation of all penalties and interest in exchange for paying a 6 percent estate tax (same rate under TRAIN) on the gross value of the decedent’s assets at the time of death. With the estate tax reform and amnesty given in one package, the government hopes that assets locked up and remaining idle for generations will be unleashed and spur the economy.
The other amnesty is a General Amnesty that covers all unpaid taxes prior to cut-off date, which could be December 2016. It is offered to give taxpayers a chance to have a fresh start as it transitions to a new and better tax regime under the TRAIN. At the same time, it is a tool for data gathering, providing information of a taxpayer’s possession and financial capability that can be used later to enhance revenue collection and enforce stricter compliance.
Several amnesty bills filed in the House and the Senate are currently being deliberated upon. At this time, it is too early to talk of a concrete structure since there are many variations put forward, among which are:
Cut-off year: Either 2015, 2016 or 2017. The 2017 cut-off may be unlikely considering that income tax returns for 2017 have not yet been filed.
Taxes Covered: All National Internal Revenue Taxes. Internal revenue taxes collected by customs on importation, such as VAT and excise taxes, should as well be covered.
Basis and Rate: Either a low rate but imposed on total assets, or a higher rate but imposed on total net worth (assets less liabilities) or only on increase in net worth. Proposed rates range from 2 percent to 5 percent. But whatever it is, the basis should be simple and easy to comply with, and the rate should be affordable to encourage more participation to the program. One based on total assets (no deductions) and low rate would be a better combination.
Exclusions: The common exclusions are: criminal cases for tax evasion, receivables that are due and demandable, withholding tax cases, cases pending with Sandiganbayan for unexplained wealth, cases pending in court for violation of Amla, cases with final and executory judgement by the courts. On criminal cases, my take is that, the exclusion should be limited only to cases found to be with probable cause and filed in court. Likewise, the exclusion of withholding taxes should be limited only to cases for failure to remit taxes withheld but not on mere failure to withhold.
Immunities: The immunity given covers all civil, criminal, and administrative cases and penalties imposed under the Tax Code. In addition, the Statement of Assets, Liabilities and Net worth (SALN), and all assets declared in the SALN cannot be used as evidence against the declarant. The immunity, however, does not extend to violations of the Amla which could be a disincentive to bringing in money kept abroad, or reporting hidden money earned from the underground economy. Immunity does not also extend to violations of the Anti-graft and Corrupt Practices Act.
Disqualification: Under-statement of SALN by at least 30 percent.
The combo-pack of Package 1 and IB should complete the tax reform on individual income and consumption taxes.