THE House of Representatives has approved on second reading Package 4 of the Duterte administration’s Comprehensive Tax Reform Program (CTRP), governing taxes on so-called passive income and those imposed on financial intermediaries and the products they offer: on savings and investments; and debt and equity instruments.
The measure is expected to be approved on third and final reading next week.
Also late Wednesday, the House Committee on Government Reorganization endorsed for plenary approval the CTRP’s Package 3 reforming real property valuation.
This, explained Finance Assistant Secretary Antonio Lambino II at the BusinessMirror Coffee Club Forum on Thursday, was meant to put on the national government the political burden of revising upward the property valuations while allowing local government units (LGUs) to derive profit from such.
Pifita a blow for equity
Though viva voce voting, members of the lower chamber passed late Wednesday on second reading the proposed Passive Income and Financial Intermediary Taxation Reform Act (Pifita) or the House Bill 304 to rationalize the taxation of the financial sector so that it becomes simpler, fairer, more efficient, and regionally competitive.
Under the Pifita bill, interests, dividends and capital gains will be levied with a unified income tax rate of 15 percent. It also unifies and lowers the tax rates on interest income and is seen to benefit 75 percent of deposit account holders who are mostly small savers, correcting the inequitable distribution of the tax burden.
Meanwhile, income from assets which only the rich have access to, such as long-term deposits, Foreign Currency Deposit Units and dividends from stocks, are subject to lower rates from zero to 15 percent. Pifita aims to generally harmonize all of these rates to a uniform 15 percent. This will improve the equity of the tax system.
This bill aims to make insurance products more affordable by lowering the tax on insurance. It will fix the unequal treatment for insurance products with similar nature such as life, health, HMO, preneed and pension, and lower the documentary stamp taxes (DSTs) on nonlife insurance.
Salceda said lower rates will encourage more participation in insurance markets, and help Filipinos cope with sickness, accidents, calamities, and disasters more easily.
This exemption translates to about P450 million in forgone government revenue, Salceda added.
Salceda said the poor and the middle class will benefit from this bill as tax on savings will be slashed.
Under the bill, tax on savings will go down from 20 percent to 15 percent. Meanwhile, the rich who invest in dividends will pay 5 percent more in taxes.
The bill seeks to reduce the current unique number of tax rates and bases from the current 80 to 36.
Lastly, Salceda said many exemptions and special rates on passive income contribute to the narrow tax base.
“Currently, there are 43 of them. This bill proposes to repeal 33, including 14 which have expired, leaving only 10,” he added.
Package 3
In approving Package 3 of the CTRP, the House Committee on Government Reorganization approved the consolidation of 13 measures all seeking to institute reforms in real property valuation and assessment in the country and reorganize the Bureau of Local Government Finance (BLGF).
Salceda, author of House Bill 305, said pursuant to the Local Government Code of 1991, his bill seeks to grant each LGU the power to create its own sources of revenue and to levy taxes, fees and charges.
Salceda said this will enable the LGUs to become self-reliant and perform their role as development partners of the national government.
According to the Asian Development Bank, Salceda said that in 2007, collection efficiency on real property tax was only 27 percent in the provinces and 68 percent in the cities.
“This poor collection efficiency severely hampers the LGUs’ ability to raise revenue from real property taxes and correspondingly constrains their capacity to provide the necessary wherewithal for constituency welfare,” said Salceda.