The Department of Finance (DOF) on Thursday said improving the organizational capacity of the government’s revenue-generating agencies would boost the estimated additional revenues under its proposed Comprehensive Tax Reform package.
As part of the transition document that will be passed on to incoming Finance Secretary Carlos Dominguez, the DOF said the organizational capacity of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) must be improved dramatically to improve collections.
To achieve this, the Finance Department recommended the BIR and BOC be allowed to retain 1 percent of the revenues they collect to serve as their operational budgets, which would promote fiscal autonomy and reverse the historical under-investment in the country’s tax administration systems.
It explained that the combined budget of the BIR and BOC as a percentage of what they collect is just 0.6 percent, even if their collection performance justified a larger investment in their systems.
“While our revenue performance has almost doubled the past six years, we are still spending less than one cent for every peso that our revenue generating agencies collect.
This investment in tax and customs administration is also low compared to international standards,” it pointed out.
Furthermore, the DOF said that the BIR and BOC must also be exempted from the salary standardization law in order to attract staff with competence and integrity and to discourage corrupt practices.
This is a key lesson from the successful organizational reform of the Bangko Sentral ng Pilipinas, which has emerged as a world-class organization, it added.
The agency added that both revenue agencies must also be reorganized and removed from civil service protection to provide greater flexibility to manage or reward staff performance.
“The next administration may also choose to pursue administrative measures that do not require legislation: tripling the number of companies in the Large Taxpayers Service (LTS) to further stabilize the revenue base, including BOC top importers in the said segment, creating a High Net Worth Individuals Unit (HNWI), and continuing to simplify tax forms, and automate the tax payment system for ease of compliance, given that 97 percent of total BIR collections come from voluntary compliance,” it also recommended.
With these revenue-positive reforms and organizational reforms to the revenue generating agencies, the DOF expects this tax reform package to generate P164.5 billion to P351 billion in additional revenues in the first year of implementation.
This is higher than its recent estimate of P134 billion to P320 billion additional revenues if tax reforms measures such as lowering income tax rate to 25 percent for individuals and corporations; exempting 11 million wage earners from income tax; fiscal incentives rationalization; index excise taxes on gas, diesel, and other oil to inflation; and expanding value-added tax base will be adopted by the next administration.
“We believe these measures as a package will improve our chances of investing and harnessing the potential of the Filipino people,” the DOF said.