It’s also probably about time we adjusted taxable income to inflation.
As part of government transition, the Department of Finance (DOF) handed over a few tax reform proposals to incoming Finance secretary Carlos “Sonny” Dominguez III.
Dominguez’s predecessor, outgoing Finance chief Cesar Purisima, said these programs could generate P164.5 billion to P351 billion in revenues for the country, and that’s for the first year alone.
What do these tax reforms really mean to the common Filipino? Let’s have a close look at each one of them.
Lower individual and corporate income tax from 32% to 25%
It’s no secret that the Philippines has the highest individual and corporate tax—at 32% and 30%, respectively. Rappler reports that the tax reform aims to lower these taxes from 32% to around 25% in the next five years. The deficit will be mitigated by “removing other personal and additional deductions and harmonizing treatment with corporate taxpayers.”
Exempt 11 million wage earners from income tax
In a campaign to push a more genuine tax reform that will benefit more ordinary wage earners, the DOF suggests that the new administration should grant an “all-in income-tax exemption of P1 million to all wage earners, which will exempt 11 million out of 12 million wage earners from paying taxes.” With low-wage earners exempted from paying income tax, they will be able to take home more money to their families and address better their daily expenses.
Fiscal incentives rationalization
By definition, a fiscal incentive is a monetary benefit offered to companies and organizations to encourage actions that will not be undertaken without the compensation. In a report by Business World, Marikina Rep. Miro Quimbo said that the national government loses around P150 billion annually from fiscal incentives given to smaller companies. When Duterte approves the pending bill that seeks to rationalize fiscal incentives to boost other industries, the government is expected to generate at least P5 million from it.
Index excise taxes on gas, diesel, and other oil products to inflation
When former President Fidel V. Ramos amended the National Internal Revenue Code in 1997, the excise tax of process gas per liter was P0.05. The government has been collecting the same excise taxes from petroleum companies since then. With the proposed tax reforms, the DOF says “this oil tax reform may also cover coal and other petroleum products to internalize the economic costs of climate change. This oil excise reform will generate P132 billion.”
Expand Value Added Tax (VAT) from 12% to 14% and remove exemptions replacing with direct subsidy
Last year, House Speaker Feliciano Belmonte expressed his disapproval of increasing the value added tax from 12% to 14%, which also includes expansion VAT “based by removing all exemption except agriculture, health, banks, education; and removing zero-rating except direct exports.” Despite being junked by congress, the finance think-tanks are still pushing for the said VAT rate, which will include its coverage to senior citizens and persons with disability. However, they suggested that the exemptions should be replaced with direct subsidies where “relief is given to those who need them, and expenditures made more directed and transparent.” The proposal would yield additional P162 billion in revenues for the government.
Tax administration reforms
According to Rappler, the Philippines and Lebanon are the only two countries in the world where tax evasion “is not a predicate crime to money laundering,” preventing the Anti Money-Laundering Council to intervene with the operations of the Bureau of Internal Revenue. With the reforms pitched to the next government, the government can run after tax evaders more effectively. Among the reforms suggested are making bank secrecy privileges removed for tax evaders and make tax evasion a predicate crime to money laundering. In addition, they also aim to remove relevant agencies from the Salary Standardization Law to “to attract staff with competence and integrity and to discourage corrupt practice.” –Dino Mari Testa