There is a need for tax policy reforms to address the collection gap from high-income earners and shift the tax burden from low- and middle-income households to the affluent sector, according to the Department of Finance (DoF).
Citing raw data from the Philippine Statistics Authority (PSA) and the Bureau of Internal Revenue (BIR), the DoF said in a statement Monday that 27.9 percent of taxes high-income earners should pay are uncollected as a result of a flawed system.
Thus, even if the BIR and the Bureau of Customs (BOC) were to improve collection efficiency to 100 percent, tax revenues to fund public investment program would not be enough given the inherent systemic flaws of the current tax system, which the Comprehensive Tax Reform Program (CTRP) aims to correct, the department said.
The Duterte administration plans to spend about P8 trillion to P9 trillion on infrastructure development over the medium term.
Taxpayers who are mostly compensation earners and whose taxes are automatically deducted from their monthly pay bear most of the tax burden, with minimal tax gaps of between 3.6 percent and 9.7 percent, the DoF said.
Data from the National Tax Research Center (NTRC) showed that the tax gaps from compensation income are around P30 billion, and P67 billion from corporate income. The value-added tax the BIR fails to collect runs to about P153 billion.
Albay Rep. Joey Salceda noted, though, that the tax gap is not more than 10 percent of the total tax revenue collections, according to the DoF.
“The so-called tax gap is not more than 10 percent. So how can you proceed to funding the very ambitious P8 trillion infrastructure goal of the President? You cannot rely on tax efficiency regardless of whether how inefficient (or efficient) the BIR is,” Salceda was quoted as saying during a recent House ways and means committee hearing.
The goal of the CTRP, particularly the first package that seeks substantial personal income tax (PIT) reductions and compensatory measures to broaden the tax base and increase collections from tax revenues, is to “capacitate” the BIR and the BOC through reforms in tax policy to collect the taxes that they are unable to collect because of the current outdated, flawed system, the lawmaker noted.
“It cannot be that we give you a (revenue) goal, but not give you the means (to accomplish it),” he told BIR officials during the hearing.
Salceda, who described the CTRP or House Bill 4774 now pending before the House panel as “the best-studied tax reform bill I’ve ever seen,” said the measure needs to be swiftly approved to sustain the country’s high gross domestic product growth while addressing inequality.
“Even if you collect everything under the current tax policy structure, it cannot [transform]the Philippines to an upper middle-income country,” he said.
“Is [the tax reform bill]just? I think I’ve looked at it from the point of view of social justice. In fact, it makes our current system more just [than]unjust,” he added.