#AskTheTaxWhiz: Is the proposed tax reform package really pro-poor?

The Philippine Tax Whiz shares what the public must know about the Tax Reform for Acceleration and Inclusion (TRAIN) bill.

Are you supporting the comprehensive tax reform package proposed by the Department of Finance (DOF)? What are the salient points in the proposed bill? Is it really pro-poor?

Yes. As a tax advocate for more than 10 years, I am fully supporting the proposed comprehensive tax reform package. However, it does not mean I agree with all the provisions of the bill, such as the lifting of the bank secrecy law.

There are actually two versions: House Bill 4688 filed by Albay 2nd District Representative Joey Salceda last December 4, 2016, and House Bill 4774 filed by Quirino Representative Dakila Cua last January 17, 2017.

Here are the key components of the package:

1. Lowering personal income taxes

  • Increasing the threshold of tax exemption from P10,000 to P250,000 per year, while keeping the P82,000 tax-exempt 13th month pay and bonuses
  • Imposing 35% income tax on those earning over P5 million, to be classified as “ultra-rich”

2. Broadening VAT base

  • Retaining VAT exemptions given to senior citizens and persons with disabilities (PWDs)

3. Adjusting fuel excise taxes

  • Imposing P6 excise tax on diesel by 2019 (starting with P3 this year)
  • Allocating 60% to 75% of excise tax collections to fund infrastructure projects and social programs

4. Adjusting automobile excise taxes

  • Imposing 20% excise tax on automobiles with prices above P2.1 million
  • Exempted: Buses, trucks, cargo vans, jeeps, etc

5. Reducing donor’s and estate tax rates to 6%

6. Lifting the bank secrecy law

7. Mandating establishments to issue electronic receipt or invoice

Both the Salceda and Cua bills target growth-driven poverty reduction by financing investments through the help of effective tax reform policies.

What do you think of the recent post of Marikina 2nd District Representative Miro Quimbo on his Facebook account? (“One of the reasons for having a low tax effort is poor tax administration. Unless we improve tax administration first, new taxes will not be effective.”)

I fully agree with Representative Quimbo. In fact, based on my experience as a former Bureau of Internal Revenue (BIR) examiner, for every P1 collection from audit and investigation, the government is losing P10 to P100, depending on the size and income of the taxpayers. This means aside from the bribe money, the real leak comes from the government’s inability to collect actual deficiency taxes from taxpayers who are not paying the right taxes because they figured they can bribe BIR examiners.

Unfortunately, tax policy reform will not address the tax leaks due to an inefficient and corrupt tax administration. However, we also cannot delay much-needed changes while waiting for both the BIR and the Bureau of Customs (BOC) to improve its administration.

Overhauling our tax system will have to be simultaneously and continuously implemented through tax policy and administration reforms. It also means helping taxpayers in paying taxes correctly.

To reduce the tax leaks during the BIR audit and investigation, we proposed the Seal of Honesty (SOH) Certification Program to help taxpayers who have been regularly audited and compromised improve their voluntary payment without the threat of penalties and compromises. For details, email us at [email protected] or call (02) 6227720.

If you are to make recommendations to the DOF, what are the most crucial aspects of the proposal you want to change?

First, we have to give credit where credit is due. The DOF, together with the BIR and the BOC, have been working hard not just to improve our collections, but to reform our tax system as well.

Now, having expressed my full support and even joining the Tax Reform Roadshow organized by the Philippine Chamber of Commerce and Industry (PCCI) with the DOF, I would like to appeal for the consideration of the following:

1. Implement a general tax amnesty (for all types of tax) before lifting the bank secrecy law. This will not just increase revenue collections, but also free those who wish to pay their taxes correctly from the burden of penalties and compromises. Also, unless the integrity of the BIR audit and investigation is ensured, lifting the bank secrecy law may only further empower “corrupt” BIR examiners who extort money from “tax evaders.”

2. Remove the “ultra-rich” category as it will further discourage voluntary and honest declaration of income and taxes. Instead of targeting to collect more from the less than 1% of individual taxpayers by imposing 35% tax, we should aim to broaden our taxpayer base to involve those who are earning more than P5 million a year, but keep the highest rate at 25%. Also, consider keeping the Optional Standard Deduction (OSD) at 40% to encourage further voluntary payment with low compliance cost.

3. Support tax policy reform through tax administration reform. I think Representative Salceda had this in mind when he authored the Tax Administration Reform Act or TARA. Again, we need to make sure we collect the right taxes from a broader taxpayer base.

This article was originally published on Rappler.

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