Learning from Other Tax Systems

The Comprehensive Tax Reform Program seeks to implement a fairer, simpler, and more efficient tax system. Toward this end, it has implemented relatively lower tax rates under Tax Reform for Acceleration and Inclusion (TRAIN) Law and also targeting to lower tax on corporate income under Tax Reform for Attracting Better And High-quality Opportunities (TRABAHO). Unfortunately, this comes at the cost of increasing other tax rates.

This should stop being the default nature for offsetting measures. Lower tax rates do not necessarily mean lower tax revenues.

Across the Asia-Pacific, even developed countries, such as Korea and Japan, have effective tax rates lower than in the Philippines.

In the Revenue Statistics 2017 study of the OECD, the Philippines had a tax-to-GDP ratio of 17%. On a related note, the Doing Business 2018 reported that the Philippines had an effective tax rate of 42.9%.

In the same OECD study, Japan had almost double the tax-to-GDP ratio at 32% while Korea had 25.3%. While Japan had a higher effective tax rate than the Philippines, close to a quarter of it was due to mandatory contributions. Korea had a much lower effective tax rate at 33.1%.

Of course, lower tax rates could still mean lower revenues, as is the case with Singapore. In 2015, they had a tax-to-GDP ratio of 13.6%, almost four points lower than the Philippines. However, their tax rates are also significantly less. According to the Doing Business 2018 report, Singapore has an effective tax rate of 20.3% and of that figure, a significant majority arose from mandatory contributions. The effective tax rate of Corporate Income Tax, for instance, amounted only to 1.48%.

Needless to say, comparing the Philippine economy to the economy of developed countries is hardly a fair comparison. However, their policies in improving tax efficiency should be emulated.

According to the same OECD report, electronic services have increased the tax collection efficiency of these countries.

Japan’s innovations include online filing, online payment, and other website services. Korea’s tax agency provides online filing, online payment, integrated taxpayer accounts, digital mailbox, and other online services. Singapore provided almost the same menu of technological innovations, in addition to an enhanced data capture system.

The Philippines provided more electronic services than any of the three developed countries, yet the performance of electronic services remains dismal.

In Japan, 50% of the returns for personal income tax were filed using electronic services, along with 64% of the returns for corporate income tax, and 63% of VAT returns. In Korea, 91% of the personal income tax returns, 98% of the corporate tax returns, and 83% of the VAT returns were filed electronically.

For Singapore, 97% of personal income tax returns, 69% of corporate income tax returns, and all of the VAT returns were filed electronically.

The Philippines, despite having significantly more features, had close to insignificant numbers. Only 1% of all personal income tax returns, 14% of corporate income tax returns, and 16% of VAT returns were filed electronically.

Tax System Comparison

Recently, the Bureau of Internal Revenue (BIR) has taken steps toward modernizing the tax administration. The eBIRForms platform has already been made mandatory for several industries.

In 2016, there were 924,450 active eFilers using eBIRForms, which increased by 13.5% in 2017. There were also 154,958 eFPS users in 2016, which increased also by 13% in 2017. For comparison, the number of taxpayers in 2016 and 2017 were 29.75 million and 32.72 million, respectively.

Of the 2.97 million increase in taxpayers from 2016 to 2017, only 17,240 Taxpayer Identification Numbers (TINs) were issued through the BIR’s eRegistration system.

As it is, the number of taxpayers using the electronic services of the BIR remains very little. Lack of public awareness about the electronic services is one of the factors cited by OECD.

For 2016, BIR’s Public Awareness Campaign comprised of two infomercials. For 2017, they held the National Tax Campaign Kick-off and a month-long campaign in regional and district campaigns. They also launched a website to promote the use of eBIRForms and electronic modes of payment.

While the 2017 campaign is a step in the right direction, it is still not enough.

One of the goals of Japan’s National Tax Agency is to enhance services for taxpayers and boost tax administration. One aspect of this goal is to provide information to taxpayers. Toward this end, they improved the agency’s website, conducted lectures to improve tax education, held briefings for taxpayers, provided readily available answers to inquiries, and held tax consultations.

Other aspects of their goal are enhancing the online tax system, improving the filing of tax returns, and diversifying the payment methods.

In addition to other countries’ policies, the features of their electronic services can be copied as well.

For instance, one of the key features in Singapore’s electronic services is the usage of pre-filled returns. Through this, the returns of taxpayers are automatically filled out based on third-party transactions, subject only to the taxpayer’s approval.

As the Tax Hub for SMEs in the Asia-Pacific, the Asian Consulting Group (ACG) advocates tax education and easier tax compliance. Toward this goal, ACG has conducted tax seminars and exclusive tax coaching for small and medium enterprises. In its seven years, ACG has assisted over 10,000 MSMEs and helped individual and corporate taxpayers save more than P1-B from unnecessary penalties and compromises.

Part of ACG’s vision is to create a centralized location for information about taxes. ACG opens its Tax Hub for regular tax seminars, and for more in-depth guidance, Exclusive Tax Coaching (ETC) for startups and Executive Tax Briefing (ETB) for business owners.

To learn more about how the Philippines’ first Tax Hub can help you, you can e-mail us at [email protected] or call us via (02) 622-7720.


This article was originally published in BusinessWorld.

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