Comprehensive Tax Reform Program revisited

The Philippines’ inefficient tax system has resulted in high taxes and low compliance among taxpayers.

The government’s solution to this nagging problem is the Comprehensive Tax Reform Program (CTRP), which seeks to create a simpler, fairer, and more efficient tax system.

The CTRP’s first package was passed in December 2017 and imposed progressive rates on personal income tax.

However, the Tax Reform for Acceleration and Inclusion (TRAIN) Act also imposed new taxes and raised existing ones.

Consequently, the TRAIN law has grown controversial as it also unfortunately coincided with high inflation rates and rising global prices.

It did not help that the implementation of social mitigating measures was delayed.

The unconditional cash transfers, for example, were not released immediately. The same goes for the fuel vouchers, which were only doled out starting August 2018.

Then, there are the supposed fare discounts and skills training that have not been heard of. In fact, instead of fare discounts, what the Filipino people got were fare hikes.

This is not to say that TRAIN law is a bad law or that it’s antipoor.

Before TRAIN, the personal income tax system was unfair with the burden carried mainly by employees. Some relief was provided with the lower income taxes.

Recently, another package of the CTRP was passed.

As of Dec. 13, 2018, the tax amnesty program was approved by Congress.

The tax amnesty program contained an estate tax amnesty, general tax amnesty, and tax amnesty on delinquencies. The amnesties cover the period ending Dec. 31, 2017.

For the General Tax Amnesty, the reconciled version proposed two options.

The first option is based on the House version, which notes that the rate will be based on total assets. The second is based on the Senate version that proposed a rate based on net worth.

The bill, however, is missing certain provisions from the Department of Finance’s (DOF) proposal, such as the lifting of the Bank Secrecy Law.

The finance secretary earlier noted the importance of lifting bank secrecy in implementing the tax amnesty.

Without the lifting, the government could lose out on as much as P15 billion.

The second package of CTRP got some traction during the middle of 2018, especially in the House of Representatives.

The Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill has already been approved on third reading by the Lower House.

However, it has seen a significantly slower progress in the Senate.

Several organizations claimed that, contrary to its namesake, Trabaho bill would actually result in massive job losses, thus further study has been pushed.

Trabaho bill is supposed to lower the corporate income tax from the current 30 percent. By 2029, the Philippines will have a 20-percent corporate income tax rate.

To offset this, the government is seeking to rationalize fiscal incentives to make them more targeted.

The fear, however, is that the proposed rationalization of incentives will cause massive job losses.

For this reason, the Trabaho bill is unlikely to be passed this year.

This, however, is an injustice to the majority of corporations that are subject to the regular income tax.

These entities who never availed themselves of any tax incentives will have to wait until the issue on rationalization is resolved.

The government needs to remember that lowering the corporate income tax to 20 percent is indispensable, if we want to remain competitive.

In fact, the government should have immediately reduced the corporate income tax to the Asean average of 25 percent.

The next package is 2 Plus which seeks to fund universal health care.

Among the taxes to be increased are those on mining, alcohol, and tobacco products.

House Bill No. 8400, which contains a new fiscal regime for the mining industry, was passed on Nov. 12.

In the Senate, the DOF has expressed support for Senate Bill No. 1979.

For the excise tax on alcohol, the Lower House has prepared HB 8618. So far, there has been no counterpart in the Senate.

The DOF also supported SB 1599 that sought to increase excise taxes on tobacco products.

Recently, the Lower House also proposed its own version, HB 8677.

While filed much later, the House version has made faster progress. Last Dec. 3, HB 8677 was approved on its third and final reading.

CTRP’s Package 3, meanwhile, has breezed through Congress.

On Nov. 12, the House of Representatives approved HB 8453 containing provisions on real property valuation.

The bill also provided for the reorganization of the Bureau of Local Government Finance.

In the Senate, the only bill on real property valuation is SB 44, but it has not yet been updated. The DOF has proposed several revisions to the SB in its Package 3 proposal.

Lastly, Package 4 recently got the attention of the Lower House. The package will focus on capital income taxation and is designed to be revenue neutral.

HB 8645, or the “Passive Income and Financial Intermediary Taxation Act of 2019,” was passed on Dec. 3.

Unlike the House’s swift action on the last package, there has not yet been any progress in the Senate.

It is important to note that tax policy reform without tax administrative reform is pointless. No matter how fair and simple the policies are, if the bureaucracy remains corrupt, then these will be ineffective.

The tax reform imposes more responsibilities on the BIR which is currently undermanned. This lack of manpower hinders the implementation of tax laws and opens up the BIR to corruption. The government needs to increase its budget, along with the compensation of examiners.

This measure will allow the BIR to hire a more honest and technocratic administration. It will also allow the bureau to modernize its systems and implement paperless bookkeeping.

There should also be measures against corruption in the BIR audit by making it more risk-based and targeted.

Under the current system, the same taxpayers are being audited over and over again.

With the current administration’s support behind CTRP, it will only be a matter of time before these packages are passed.

These changes will affect every taxpayer and learning about them beforehand could help businesses grow.

Prepare by attending tax seminars or getting tax coaching. An executive tax briefing could also arm you with the appropriate knowledge to welcome tax reform.