The Department of Finance (DOF) supports the abolition of the fraud-prone tax credit certificate (TCC) system under the second package of the comprehensive tax-reform program (CTRP) it anticipates submitting to Congress by October this year. The TCC system was so corrupt, the national coffers were instead denied more than P5 billion rather than benefit from the scheme.
According to Finance Secretary Carlos G. Dominguez III, package two basically aims to reduce the corporate income tax from 30 percent to 25 percent, in tandem with the proposed recalibration of fiscal incentives.
“The second tax package, which we will submit by October, will reduce tax rates for corporations to be more in line with the Asean. And, at the same time, we will also remove all fiscal incentives,” Dominguez said in an interview last Friday at the sidelines of the 2017 Asean Finance Ministers’ Investors Seminar in Mactan, Cebu.
Based on the initial proposal submitted to the House of Representatives last September, the reduction of corporate income tax should result to estimated revenue loss of P34.8 billion by 2019. But an offsetting measure will allow the government to gain P33.8 billion in the same year.
CTRP package two proposes the removal of the optional standard deductions (OSDs) in corporations. OSD allows the deduction from the business income of persons who are entitled to a maximum 40 percent in gross sales and receipts for individual taxpayers and corporations during the taxable year.
Package two also proposes a full value-added tax (VAT) refund to businesses in cash. Whenever the input VAT credits of a taxpayer exceed his VAT liabilities, the Tax Code allows the carryover of the excess to the succeeding quarters or one can apply for a refund.
The DOF, likewise, proposes to cut the corporate income-tax rate to 15 percent and the expansion of the coverage of the fiscal incentives review board to include all incentive recipients beyond government-owned and -controlled corporations.
The simplification of corporate tax provisions under the country’s tax system was also proposed to increase taxpayer compliance.
Dominguez added the DOF is confident package one of the CTRP, which aims to lower personal income-tax rates from 32 percent to 25 percent, along with offsetting measures that include the broadening of the taxpayer base of the country, will pass Congress by July this year.
Package one lifted some exemptions on the VAT and increased the tax imposed on petroleum products and automobiles.
The first package projects estimated revenue losses of P159 billion and a revenue gain of P359.7 billion.
Broken down, the offsetting measure of expanding the VAT base should generate P163.4 billion, while increases in petroleum product excise should generate another P178.2 billion.
The first package was sent to the House of Representatives in September 2016 but targeted for approval only by July this year.
“Yes, we are very confident that shortly after June, the legislature will pass the first package that we have relating to personal income taxes and fuel taxes,” he added.
Earlier, Dominguez welcomed the move by the House Committee on Ways and Means approving in principle the first package of the CTRP as a whole and not on a piecemeal basis.
The committee, chaired by Quirino Rep. Dakila Carlo E. Cua, approved in principle the tax reform as a package subject to the creation of a technical working group (TWG) that would draw up a substitute bill consolidating the proposed reforms with other tax-related proposals.
Marikina Second District Rep. Romero Federico S. Quimbo said the more challenging provisions under (HB) 4774 center on the increase in the excise tax on fuel, which the lawmakers want to further deliberate on.
“For me, the more contentious ones really are the excise tax on fuel, as well as the fixed rate for the self-employed. Those are the two most challenging, because they are the most damaging,” Quimbo said.
With Congress having gone to recess and with the bill requiring to be tackled at the Senate, the approval might take long.
“No, it’s not going to happen [by July], I think, because we will start May 2 and then the Senate will have to hear it. I’m not very optimistic that it can be finished by then,” he said.
Social Welfare Secretary Judy M. Taguiwalo also expressed apprehension on the expansion of VAT cover on the sale or exchange of services, particularly on cooperatives, explaining that it will shift the tax burden to the social welfare agency and its Pantawid Pamilya beneficiaries, which will discourage stakeholders from creating cooperatives.
Finance Undersecretary Karl Kendrick T. Chua earlier said the creation of a TWG to tackle HB 4774 and other bills will take into account the concerns of the committee and help address it through the creation of a revised bill: “It is not in our hands but we will try our best.”
Apart from package one and two, other DOF-supported measures pertain to property taxation on estate, donors and national valuation. The fourth package is about financial or capital income tax and stock consumption. The last package tackles health, alcohol, tobacco, sugar sweetened, plastics and carbon tax.
Chua added that the DOF is still waiting for the data generated from the Tax Incentives Management and Transparency Act before finalizing the cost and benefit figures for package two of the CTRP.