Today is a good and exciting day for our law firm. Beginning today and every Thursday, we have the privilege (thank you, The Manila Times!) of being able to share and write here about our work and passion – the law. We love the law because its intention is noble – it aims to be an instrument for change for the better. Many laws promote lasting and effective change for the greater good. Some, unfortunately, do not. Here, we will share our thoughts and opinions about various laws.
As active tax practitioners, the recently passed tax reform law – the TRAIN – seems like a good place for us to start. It was passed to make our taxes fair and progressive, give taxpayers more disposable income, increase economic activity, and ensure that the government is able to provide for the needs of its people. Despite its laudable objectives though, many are critical about the TRAIN as being anti-poor.
No one wants to pay taxes, but we must do, because the saying is true: “Taxes are the lifeblood of our nation.” So, we do many things in life not because we want to, but because we have to, out of a sense of duty and good conscience; more importantly, because they are the right thing to do.
So, was the passage of TRAIN the right thing to do?
Our Tax Code was last amended in a major way in 1997 and the income tax brackets (which state the rates of taxes one must pay based on how much he or she earned during the year) have been there since the 1970s.
Clearly, a change was necessary to catch up with the times. The government made tax reform a priority. Thus, we saw the TRAIN Package 1 (Republic Act No.10963) passed in a year, with laudable objectives.
To address the issue of fairness and progressivity—where those who earn less are subject to lesser tax than those who earn more—the personal income tax brackets were adjusted. Individuals who earn taxable income of P500,000 (income in excess of the P250,000 exempt-income) in a year are now subject to a 25 percent tax rate (which eventually will go down to 20 percent), instead of the current 32 percent tax. Those earning more than P8 million will be subject to a higher tax rate of 35 percent.
To simplify, an 8 percent gross income tax is now available for self-employed and professionals earning P3 million or less; tax returns are mandated not to exceed four pages (thank goodness!), and withholding tax remittances are supposed to now be made quarterly, instead of monthly. We are still far away from the simple and effective gross tax system of Hong Kong, but at least, we are inching toward that.
To increase revenues—the painful part—we now see increases in excise tax rates (especially on diesel and kerosene), removal of tax exemptions and taxation of new items, such as cosmetic procedures and sweetened beverages, among others.
Our government has ambitious projects, including much needed infrastructure projects in the provinces. So, the government has to find ways not just to compensate for the reduction of income tax rates, but also to fund its projects.
We believe we should we support the TRAIN, even if, as some think, it taxes the poor. It is the right thing to do, given that the betterment of our nation is the duty of every citizen, rich and poor.
No doubt then, the TRAIN is a good beginning.
There are still other Tax Code amendments to follow. TRAIN Package 1A is expected to cover the imposition of motor vehicle user tax, relaxation of bank secrecy act rules, and the most awaited estate tax and general tax amnesty. A draft of Package 2, which seeks to reduce the corporate income tax and harmonize incentives, has been submitted to Congress.
There is also much to be done besides amending our Tax Code. Our government’s challenge is still to increase the tax base – the number of taxpayers paying taxes directly. Out of a 105-million population, we only have about 18 million registered corporate and individual taxpayers. Thus, our tax base (the number of taxpayers, measured against the size of our population) is very low. In other words, we have a huge underground economy.
Also, as of this writing, the BIR is yet to release the income tax and VAT regulations on the TRAIN. Indeed, there is also still much to come, much to talk about, and much to share. These are exciting times!
Thus, in our next articles, we will discuss more about TRAIN Package2, the CMTA (Customs Modernization and Tariff Act), and many other legal “stuff” (including data privacy and labor laws)
More to follow . . .
Euney Marie J. Mata-Perez is a CPA-lawyer and the founder and managing partner of Mata-Perez, Tamayo & Francisco. She specializes in corporate and tax law, and is a past president of the Tax Management Association of the Philippines. She can be contacted at email@example.com.