July 26, 2017, 8:41 am
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Tax reform: Kinder to poor, just to rich

The Duterte administration plans to reform the revenue system to be “kinder to the poor and just to the rich,” the country’s finance chief said. Carlos Dominguez, finance secretary, said in a few weeks, the government should be able to find the proper rebalancing between lower tax rates and a broader tax base.

“Give us a little more time. Surely, towards the end of the year, we should be able to sit down with our colleagues in the legislature and craft a revenue system that is kinder to the poor and just to the rich,” Dominguez said.

“You will note that most of the ideas are open-ended. That is because most of the answers are yet to be found,” he added.

Among the tax measures being reviewed for inclusion are the increase in excise tax on petroleum products, lowering of the personal income tax and corporate tax rates, the all-in P1 million income tax exemption, fiscal incentives rationalization, and the easing of the bank secrecy law.

“The previous administration clung to the obsolete tax rates because it could find no substitute for them. It did not want to lose the much-vaunted credit ratings – although these were won largely by the fiscal policies of the Arroyo administration,” Dominguez said.

“These led to certain distortions in our public finance policy. Government borrowed but was hesitant to spend. This produced chronic underspending and a severe shortfall in infrastructure,” he added.

The above-mentioned possible tax measures however are similar to those included in the comprehensive tax reform study of the Department of Finance (DOF), then under the leadership of Cesar Purisima, former finance secretary.

Purisima’s tax reform package was presented just less than two months before the end of the Aquino administration’s term.

Purisima then said the study will be passed on “for the new leadership to consider taking forward.”

But Dominguez said he is against the increase in value-added tax (VAT) to 14 percent from the current level of 12 percent, as included in Purisima’s study.

The current finance chief said VAT collections can be doubled simply by being more efficient in collecting it.

“There has to be a way for government to lower rates while broadening the tax base. We have examined the numbers. I am sure there is a way to keep the budget balanced while growing the middle class,” Dominguez said.

Paola Alvarez, DOF spokesperson, also said the current administration is looking at imposing excise tax on sweetened-beverages to offset possible losses brought by the proposed reduction in individual and corporate income taxes.

Alvarez said despite plans to slash rates, the government’s tax reform package will remain net revenue positive.

“We think that if we propose a new tax package then the taxpayers will not hesitate to pay their taxes correctly because the losses of the government are mostly from tax evasion, tax fraud, and corruption from the revenue generating agencies,” Alvarez said.

She added it is “doable” to have the tax reform package passed into law within the first year of the Duterte administration.

“We think it is doable because we already have the tax proposal since the previous administration so we just have to refile them, collect them, and then we just have to see to it that the concerns of the different sectors will be addressed,” Alvarez said.In an earlier statement, the Tax Management Association of the Philippines (TMAP) said with the clear pronouncements of President Duterte, the group does not see “any reason why the passage of the comprehensive tax measure will not materialize during the early part of his term.”

“The relaxation of the bank secrecy law as well as the simplification and improvement of the efficiency of our tax system are reforms directed to increase voluntary compliance by taxpayers, increase the tax base, and consequently increase tax collection,” TMAP said.

“With the lowering of the income tax rates, which will result in revenue erosion, the need to significantly increase the tax base and improve voluntary compliance cannot be overemphasized. This is where all of us can help push for tax reform by having a tax-conscious, vigilant, and involved mindset,” the group added.
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