The Department of Finance (DOF) has proposed a number of tax reform measures that could gain from P134 billion to P320 billion in additional revenue if implemented, Finance Secretary Cesar Purisima said.
In a presentation before the American Chamber of Commerce General Membership meeting, Purisima revealed the agency’s long-running study on tax reform, which contains components for a comprehensive tax reform the next administration may consider pushing forward.
This tax reform, if done holistically, has immense potential to re-engineer the Philippine economy toward a more equitable, dynamic, and competitive one, he said.
“The DOF has been making rigorous studies with our multilateral partners like the World Bank and the IMF [International Monetary Fund] on how to go about a holistic, revenue-positive, and equitable package. So far, we’ve heard a lot of interesting ideas,” Purisima said.
Lower tax rates
Under this measure, a P1 million all-in income tax exemption combined with a lower top tax rate from 32 percent to 25 percent “ought to make the tax system more progressive, not to mention induce more buy-in,” Purisima said.
Lowering corporate income tax rates from 32 percent to 25 percent may lead to a P9-billion reduction in revenues, but ought to make for a more competitive Philippines in Association of Southeast Asian Nations, he explained.
These measures, the DOF estimated, would cost the government a loss of P158 billion to P222 billion.
Equalizing the tax treatment of self-employed professionals with corporate taxpayers will help compensate for losses from other adjustments, with an expected gain of P2 billion, the DOF chief said.
An even bigger revenue measure, however, is a proposed increase of the excise tax on gas, diesel, and other oil, triggered and pegged with oil prices, which is seen to generate P101 billion.
In addition the reform package expands the value-added tax (VAT) base and increases the tax rate from 12 percent to 14 percent, which is estimated to produce a P162-billion revenue gain.
Making tax evasion a predicate crime to money laundering and repealing bank secrecy for the Bureau of Internal Revenue could add up to P210 billion.
“But I think we ought to make a one-time tax amnesty part of the package to make it feasible,” Purisima said.
From all these, the Finance Secretary said studies project a total revenue gain of up to P320 billion, just for the first year.
“Of course, there ought to be triggers for many of these things to happen. For example, the tax to GDP [gross domestic product]ratio needs to hit a certain level before the tax rates decrease by certain percentage points, over time,” he said.
“These are just ideas we’ve explored with technical experts and multilateral partners over time but have not come to fruition nor have been considered with finality due to timing and political realities. We’re looking forward to passing this on to the next administration to continue to study,” he added.