Tax reforms done hastily and amid an election period would be a “disservice” to Filipinos and the last thing needed for sustainable economic growth, Finance officials said.
In a statement issued over the weekend, the Department of the Finance (DOF) and the Bureau of Internal Revenue (BIR) criticized moves in Congress to lower income taxes, describing these as “reductionist” and a “simplistic approach to tax reform”.
“I have always believed that a reform of our tax laws is long due. But I believe in true tax reform: one that does not look at certain, popular aspects in isolation without making hard choices to sustain our momentum and secure our future,” Finance Secretary Cesar Purisima said.
“Shortsighted policies short-sell the Filipino people in the long run: I think history will be kind to statesmen who are courageous enough to pass genuine tax reform,” he added.
Legislators wants Malacañang—which has rejected a call echoed by other sectors—to support House Bill 4829, which would adjust income taxes to inflation.
Under the bill, those earning P22,000 and below will taxed 5 percent, with other tax brackets being adjusted up to the top tier of those earning over P1.095 million, who will have to pay a fixed tax of P273,750 plus an additional 32 percent of the excess over that amount.
The proposal has been described as favorable to low and middle income wage earners, compared to the current setup of having a 5 percent tax for those earning P10,000 or less monthly, and those taking in P500,000 and above paying a 32-percent income tax.
The Finance department, which has said that lowering income taxes for individuals would cut government revenues by as much as 1.5 percent of gross domestic product or P30 billion yearly, insisted that it would support the bill if Congress also amended bank secrecy laws to allow the government to go after tax evaders.
Filipinos, the department said, should support bank secrecy reforms as a “a prerequisite and pillar” of any proposed tax reform plan.
“We cannot take a reductionist or simplistic approach to tax reform,” Revenue Commissioner Kim Jacinto Henares said.
“It is easy (and I must say, very popular during election season) to cut taxes, and if we only look at this as a simple yes or no question, who wouldn’t want to?,” she asked.
“But we must be more fiscally responsible and ask the right (even if they are tough) questions in making our effort at tax reform a balanced one, for the sake of those whom we pass this country on to,” Henares said.
“Funding our future works like an equation: diminishing one aspect is only fine if we strengthen another.”
The Finance department claimed the Philippines was one of only three countrie—the others being Switzerland and Lebanon—where tax officials cannot readily access bank transactions.
The country was also described as being the only one in the Asia-Pacific region with highly restrictive laws on access to bank transactions with regard to tracing crimes such as money laundering.
Along with Lebanon, the Philippines is also where tax evasion is not a predicate crime to money laundering, the Finance department noted.
The tax bureau said current laws are so strict that even the Anti-Money Laundering Council is prohibited from sharing data with tax authorities.
The Finance department noted that the tax base remained narrow, with the 2,128 companies in the BIR’s Large Taxpayer Service accounting for 64 percent of all tax revenues, or around P824 billion of the P1.3 trillion in 2014 collections.
As of end-June, meanwhile, the tax bureau recorded 400 tax evasion cases, which collectively amount to P73 billion due the government.
These numbers indicate that lowering income tax rates alone would trim overall tax collections to levels that could adversely affect our economy, the Finance department and the tax bureau said.
“We believe the underpinning policy weakness that causes a narrow tax base and low compliance rate are the very restrictive bank secrecy laws that weaken the BIR’s capacity to carry out its mandate,” the department said.
“The Philippines has achieved much over the past 5 years, and much of this has been the product of responsible, balanced, and good governance. I repeat: our country’s story of change is an ongoing process in a continuum. While we have come far, we cannot mistake our gains for having reached the finish line,” Purisima said.
Legislators have admitted that without Malacanang’s support, the income tax bill will likely fail given that the priority for the rest of the year is the passage of the 2016 budget. Substantial reform measures are unlikely to be prioritized next year as lawmakers focus on the upcoming elections.
Leaders of the House of Representatives and the Senate said they would be meeting with President Benigno Aquino 3rd to discuss the income tax issue.