Finalizing the provisions of the tax-reform measure is proving to be a “difficult task” for both houses of Congress, with the bicameral conference committee making little progress in three days of deliberations to harmonize the Senate and House versions.
As of press time on Wednesday, House Minority Leader Danilo E. Suarez of the Third District of Quezon said members of the committee are still trying to break the impasse and address “contentious provisions” in the proposed Tax Reform for Acceleration and Inclusion (TRAIN) Act.
“Despite this challenge, the House and Senate are halfway through the deliberations and have already agreed on several provisions,” Suarez said. “[However] those provisions agreed upon by the Senate-House panel [during the last two bicameral meetings last Friday and Tuesday] are not significant.”
However, he said the bicameral committee is targeting to finish its deliberation and produce a joint version of the TRAIN by Wednesday.
“We are still not discussing big-ticket [items] like the [additional taxes on] fuel, automobile and others. Today, [Wednesday], we have to conduct a marathon hearing because they target to finish it today,” he said.
One of the key provisions of TRAIN that both houses of Congress have approved is the personal income-tax exemption of all workers earning P250,000 annually.
“This is helpful to our minimum wage earners who will benefit from use of their full earnings. The TRAIN targets to raise P130 billion in government revenue,” Suarez said.
Senate President Pro Tempore Ralph G. Recto said on Wednesday the bicameral committe also endorsed for final approval by Congress a conference committee report on a bill lowering estate taxes, even as the proposed law increases deduction and relaxed rules in favor of heirs.
Recto said members of the bicameral committee tasked to finalize President Duterte’s new tax plan, also moved to “cut the rates and requirements” on the estate tax levied on a deceased person’s assets. “Billions in properties left behind by hundreds of thousands of departed Filipinos” remain in limbo for the failure of their heirs to pay the estate tax,” Recto said, “either for lack of knowledge or lack of money or both.”
The Senate leader confirmed the final version of the bill expected to be ratified by the Senate and the House this week prior to its submission for signing into law by President Duterte, provides that the estate tax will be levied a 6-percent flat tax, while family homes valued at P10 million will be tax exempt, even as standard deduction is hiked to P5 million.
At present, Recto said there are six tiers of the estate tax, with assets worth P200,000 exempt, with the highest rate slapped on an estate valued at P10 million and up, which will pay P1.25 million, plus 20 percent in excess of P10 million.
He added that the estate tax on the fourth tier, which covers assets in the P2-million to P5-million range is P135,000, plus 11 percent in excess of P 2 million.
Recto disclosed the bicameral committee also agreed to increase the estate tax-exempt value of a family home to P10 million from P1 million.
“We have decided to increase it by tenfold to reflect real-estate realities as the current rates were set 20 years ago when homes were a lot cheaper,” the senator said, adding: “If a P2-million house today is only as big as a matchbox, why would you still tax it?”
According to Recto, the bicameral panel also agreed to raise the standard allowable deduction to P5 million “so that when you compute the estate tax, there is an automatic P5 million in deductibles.”
At present, the senator said surviving heirs are allowed to claim a maximum of P500,000 for medical expenses and P200,000 for the funeral of the deceased. “This is why we raised the deductibles to P5 million to cover such expenses.”
Recto also cited another stringent rule relaxed by lawmakers crafting the final version of the TRAIN bill which covers the amount that can be withdrawn from the deceased’s bank deposits, which are automatically frozen upon the demise of the account holder.
“We have agreed to allow an heir, or executor, or administrator, to make withdrawals, with no limit, for as long as a withholding tax is paid every transaction,” the senator said. He noted that, under the present system, surviving heirs cannot withdraw from the account of the deceased at the time they need the money to cover hospital and burial expenses until they pay taxes and comply with clearance requirements.
“We have also done away with rules that raise the hurdle for compliance,” Recto said, adding: “The filing of the estate-tax return shall be extended from six months to one year. Payments can also be made
by installment.”
He said they are also setting aside the need for Certified Public Accountant certification if the property involved is not more than P5 million.
Recto added the congressional committee also set aside a requirement to post a notice of death prior to estate settlement, “We already removed that,” the senator said. “The overall objective is ease in payment of estate tax at a time when a family is grieving over the loss of a loved one. In their bereavement, they need to be consoled.”
He lamented that complicated rules have resulted in low payment of estate tax, with only eight deaths out of 100 making an estate-tax filing.
‘Controversial provisions’
The excise taxes on petroleum, coal, minerals, automobiles, sugar-sweetened beverages and cosmetic procedures are still under deliberations of the members of the bicameral committee.
“The increased taxes from these items will make up for what the government will lose from the personal income-tax exemptions and reductions. Hence, we hope that the bicameral conference committee would come up with the best tax rates that would be fair for all,” Suarez said.
“The minority has been consistent on its position toward a ‘revenue neutral’ tax reform. This means that the revenue loss from the tax cuts should be offset by the revenue gains from broadening the tax base, increasing excise taxes, eliminating deductions and other related measures,” he added.
The proposed TRAIN Act is targeting to raise P130 billion in revenues to finance the Duterte administration’s ambitious infrastructure program.
“It is good news that we are getting closer to the fruition of the TRAIN. This will introduce necessary reforms to our country’s tax system and will also raise revenues that will support the administration’s infrastructure development program,” he added.
He said the TRAIN also aims to achieve administrative simplicity. “The goal is to simplify the process involving filing of taxes to make the procedure less vulnerable to corruption.”
Some of the measures that the bicameral conference committee is looking at, Suarez said, are reducing the number of documents needed to be filed per transaction, and reducing the number of times per year that the value-added tax and percentage tax should be filed.
The House leader also said he will ask the Department of Finance (DOF) to set revenue targets in all revenue district offices and country’s point of entries.
Suarez is pushing for the full implementation of Republic Act 9335, or the Lateral Attrition Law. But this law, Suarez said, can only implemented if the DOF will implement target-setting.
“This law provides penalties and rewards against officials of the Bureau of Internal Revenue and the Bureau of Customs. Unfortunately, this law is dormant. Without the attrition law, the widening gap between government spending and revenue stands defenseless to the inefficient tax collection,” he said.
Image credits: AP/Bullit Marquez