The Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), both attached agencies of the Department of Finance (DOF), are the country’s main revenue collecting agencies. The government relies heavily on them to fund its various expenditures. Their yearly collection performances are influenced by a myriad of variables that include, among others, the level of commercial activities in the country and, to a large extent, the state of the national economic development. The manner in which the tax and customs laws, rules and regulations are applied and enforced is indubitably one of the key elements and critical success factors.
A well-thought-out tax and customs reform has the potential of significantly increasing the size of the economy. The measures can be considered as the tools, when properly implemented, and are needed to gear up efforts to generate the much-needed government revenues.
Republic Act (RA) No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN) and RA No. 10863, or the Customs Modernization and Tariff Act (CMTA), are landmark laws designed to basically meet the twin objectives of simplifying tax and customs rules, and at the same time, improving the generation of revenues. Tax and customs laws invariably complement each other.
The TRAIN, which is already in effect, is the first package of the Comprehensive Tax Reform Program (CTRP) envisioned by the Duterte Administration. While it increased tax on certain passive incomes, documentary stamp, excise on petroleum products, minerals, automobiles, as well as expanded the value added tax base, the TRAIN, to a certain extent, matches it by correspondingly reducing the tax on personal income, estate and donation.
Such careful calibration is believed to eventually raise the expected revenues that will be used to fund the government’s laudable infrastructure, health, education, other “socio-economic” and high priority development projects.
Amid the moves by certain groups to stop the TRAIN implementation, the second tax reform package of the CTRP is forthcoming. It principally targets the lowering of the corporate income tax rate and rationalizes existing fiscal incentives (being enjoyed by many companies) with the end view of essentially balancing the projected incremental returns from the first package. More tax reform packages that will address inadequacies in the rules will then be introduced to complete the total overhauling of the Philippine tax system.
The CMTA, on the other hand, was enacted with similar goals – to simplify, modernize and harmonize international trade procedures, which then emerged as a critical issue for the world trading system. It became effective on June 16, 2016.
From a historical perspective, the first piece of tariff legislation was passed by the United States Congress for the Philippines during the American regime. This was known as the Philippine Tariff Act of 1909, which gave birth to the imposition of tariff on goods coming from foreign countries and entering the Philippines.
In 1957, RA No. 1937 was crafted and passed by the Philippine Congress as the first Tariff and Customs Code of the Philippines (TCCP) that codified customs laws for the country, superseding the 48-year colonial regime of the Tariff Act of 1909.
Certain provisions of the TCCP eventually became obsolete but were updated through various presidential decrees issued during the Martial Law regime. In 1972, Presidential Decree (PD) No. 34 consolidated all amendments into one Code.
In 1978, RA No. 1464 was signed into law (revising PD No. 34), which, in general, reinforced and strengthened the punitive force of the TCCP against smuggling and other forms of customs fraud.
Many changes in global and regional trade policies, rules and processes have since then developed and evolved, which were addressed (through legislative amendments and administrative issuances) on a piecemeal basis. Hence arose the need to consolidate these changes through the enactment of the CMTA.
The CMTA took into consideration the mandatory standards of the Revised Kyoto Convention (the blueprint for modern and efficient customs procedures of the World Customs Organization, to which the Philippines is a signatory), international agreements, recommendations from the business sectors and industry groups, as well as some of the best practices in customs administration, among others. It is aimed to transform the BOC into a modern and efficient organization that is at par with global standards.
While there is an immense challenge to “clean up” the BOC, the present Commissioner recently presented his 5-point program to further introduce radical reforms in the BOC. This program covers the goal of eradicating corruption, increasing revenues, ensuring trade facilitation, strengthening anti-smuggling efforts and enhancing the personnel incentives, rewards system, as well as compensation benefits for BOC personnel. With the proper application, implementation and enforcement of the provisions of the CMTA, there emerges hope that these goals could soon be realized considerably.
Although the TRAIN and the CMTA may be far from being perfect, the quest to institute genuine and thoughtful tax and customs reforms, coupled with an intense effort and seriousness of purpose, could be the key to catapult us toward the direction of growth. As aptly stated by the Supreme Court in the case of CIR vs Central Luzon Drug Corporation,G.R. No. 159647 dated April 15, 2005, “the power to tax has, indeed, become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth.”
With strong leadership and able and selfless officials who are willing to subjugate their own interests to that of the country, the resurgence of the nation and fulfillment of the “Filipino dream” of advancement and development in the country may not be far away.
The momentum toward effecting change is sturdily being felt and transformation in our country is unfolding, gradually but surely, before our very eyes. We expect more, more and more changes to follow….
Mark Anthony P. Tamayo is a CPA-lawyer and a partner of Mata-Perez, Tamayo & Francisco Law offices (MTF Law). He is consistently named as one of the recognized Indirect Tax Leaders in the Philippines and was the “2016 Asia Tax Practice Leader of the year”awardee by the International Tax Review. He is also a law professor and recognized professional lecturer. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at firstname.lastname@example.org.