FINANCE Secretary Carlos G. Dominguez III called on tax management professionals to stop finding “loopholes” for their clients to get away with tax avoidance as this prevents the government from collecting more funds for pandemic response, economic investments, and payment of debts.
Speaking before the Tax Management Association of the Philippines (TMAP) on Thursday, Dominguez said tax management specialists should instead help build trust among taxpayers and encourage them to pay the right taxes.
“For some professionals, tax management means finding the loopholes and uncovering the means for tax avoidance. This is probably the more lucrative side of your profession. But it is not the most patriotic,” Dominguez said during the virtual TMAP induction of officers and inaugural general membership meeting for 2022.
“This particular interpretation of tax management definitely works for the paying clients who are happy to settle a smaller tax bill. They hire “tax management specialists” precisely to achieve this. It does not, however, work in the best interest of the nation,” he added.
While Dominguez said the government surpassed its revenue targets for the year and exceeded last year’s collections, data showed that the effective tax rate for the value-added tax (VAT) remains at 5 percent versus the legal rate of 12 percent.
In terms of corporate income tax, the effective rate before the effectivity of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law last year stood at only 9 percent against the legal rate of 30 percent, Dominguez said.
The “yawning discrepancies” between the actual legal rate and the effective tax rate can be traced to both tax evasion and avoidance, he said.
The finance official pointed out that the discrepancies resulted from expert “tax management” by professionals for their clients, lamenting that these tax management practices prevent the government from collecting enough to invest in productive projects and to pay for its debts.
“Had the government been able to collect all taxes due, we would have had more funds to cover our economic investments, debt service, and Covid-19 response expenditures. We would have borrowed less. The government would have been better able to invest in building the prosperous future our people deserve,” he said.
Dominguez also stressed that the government needs all the revenues it can get to meet the challenges of the time.
“I, therefore, urge the TMAP to help the government fill in this revenue gap and not widen it further. Tax management should mean raising funds sufficient to allow investment in public goods,” he added.
As of end-November last year, the national government’s budget deficit widened to P1.3 trillion, eclipsing the P1.07 trillion shortfall from the same period by 24.63 percent.
The wider budget shortfall resulted from state expenditures exceeding revenues.
The government was aiming to raise P2.88 trillion in revenues for 2021 and P3.3 trillion in 2022.