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Thrift banks seek lower tax rate for deposits

THE Chamber of Thrift Banks (CTB) seeks a lower tax rate on interest income from savings under the fourth package of the Duterte administration’s tax-reform program to cushion the impact of the proposed higher taxes on certain goods and encourage Filipinos to save for future emergency needs.

The chamber said the tax on interest-earning deposits at 20 percent runs counter to the goals of the tax reform and saving for low- and middle-income earners.

“We want to see, as the Department of Finance [DOF] says, what is equitable, simple and fair. For example, savings that people keep for emergency are taxed 20 percent, so you have to look at the impact and the purpose of saving. Most Filipinos resort to savings because they can’t afford investments,” CTB President Gregorio B. Anonas III told the BusinessMirror.

Anonas said the lower tax rate will encourage saving as part of better fund management.  

The DOF said it will eventually tackle the tax on interest-earning deposits and other banking services when it begins restructuring the capital income tax under the fourth package of the Comprehensive Tax Reform Program.

The DOF has laid out five packages that also include tax reforms on property, corporate income and bank secrecy.

“We will be considering the tax on savings under the fourth package of the tax reform. Among the Asean region, the Philippines has one of the highest taxes on savings, and, based on our research, the financial taxes is the most disorganized class in the current tax structure,” said DOF Director for Research and Information Office Juvy C. Danofrata, who was CTB’s guest speaker at the group’s general membership meeting in Shangri-La Hotel in Makati City last Friday.

In Thailand such tax averaged 2 percent and climbed to only 13 percent once, while Cambodia and Vietnam impose 5 percent. On the other hand, Indonesia also requires a 20-percent tax on savings.

Such doubled-digit tax rate in the Philippines negates the returns on time deposit to savers that reached only 3 percent in the last week of August, according to the data of the Bangko Sentral ng Pilipinas (BSP). The BSP has argued that the low rate of return enable banks to also offer low interest rates on loans.

However, Anonas sees the additional gains from lower tax on interest-earning deposits to further enable bank clients to apply for more loans that fulfill their needs, such as home and automobile.

He said their increased earning from savings will also help fill the losses from proposed higher value-added tax (VAT) on consumer goods, especially on oil and petroleum products, that is seen to affect the majority of the population who ride pubic transport.

“I like the VAT or consumption tax. It’s not what kind you consume, but also how much you consume. I support the VAT on consumer goods, like sweetened beverages, and lowering of personal income tax because we have to consider the effects of higher taxes on other needs and obligations of the people,” Anonas said.

The DOF aims to impose additional P10 per liter on sweetened drinks to protect public health and raise government funds to support long-term socioeconomic growth.

However, Anonas disagrees with proponents who aim to impose excessive tax on automobile to ease congestion in Metro Manila.

“It’s very bad to solve the traffic problem because of the auto industry. You don’t want to kill another industry to address it. They’re looking at the problem in a wrong way. The solution is an efficient mass transit as in abroad,” Anonas said.

The thrift banks, he added, continue to balance and diversify their loan portfolio beyond home and automobile in case demand for either weakens due to the anticipated price hikes.

The DOF also shared it is looking into subsidizing interest for Pag-IBIG, the fund for home development that is owned and controlled by the government.

“The problem is, if you will the give interest as subsidy to Pag-ibig, it will hurt the industry because people will then go to Pag-ibig. But I don’t think it has the resources to facilitate the subsidy in time because the bureaucracy is there,” Anonas said.

At present the CTB is positive the private thrift banks will remain attractive to borrowers, as the conditions of the market for processing efficiency and fair rates are being satisfied by the sector.

“Right now our interest rates are competitive, but if they pursue it, the rates will be lowered. But the question is, does Pag-ibig have the funds? Right now the difference in rates is very small. Now we offer 5 percent to 6 percent. Also, we can process faster than Pag-ibig, so people will still go to us, and whenever you are subsidizing, there is an artificial component that is lower than what the market actually demands,” Anonas said.

The CTB said it will continue to push for financial measures to continue helping people cope with economic and fiscal challenges. “We seek to lower the taxes on interest-earning deposits to encourage saving, help Filipinos pay their taxes and, most important, help Filipinos live better. As bankers, we want to improve the quality of the lives of our customers and, so, we offer savings, deposits and other financial services.”

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