Conclusion
THE state asserts that taxes paid by entities within the country’s borders are shored back to the economy in the form of improved government social services.
The National Tax Research Center (NTRC), in its June 2015 publication entitled “Where does your tax money go?” justified more tax collections as doing so equates to greater elbow room for spending. According to the NTRC, the bulk of spending is for delivery of government services, which is accomplished through the bureaucracy.
One component of the bureaucracy is the 42-year-old Metropolitan Manila Development Authority (MMDA).
According to the NTRC, the MMDA used its allocation from the tax pie in 2014 for the declogging of drainage systems, dredging works, cleaning of manholes and hauling and disposal of garbage. The MMDA allotted P271 million for these services.
The government said taxes were also used to provide potable water to rural folks in 878 local water districts in 2014. In terms of power supply, the government has powered at least 36,052 barangays in 2014, from the 35,860 in 2009, through a Barangay Line Enhancement Program.
In the same year, marketing and financial assistance resulted in an increase in exports amounting to $61.80 billion, from $38.44 billion in 2009, through the government’s use of funds for trade promotions through trade events for local and international products.
According to the NTRC, the publication on where taxpayers’ money go will be updated by next year.
“We are yet to update the publication to see if there has been a difference between the old administration and the new expenditure pattern,” the NTRC added.
Complicated?
TAX experts in the country have pointed out that it is not the tax system that is complicated, but the rules and regulations that govern it.
“The challenge is under the voluntary assessment system, which the Philippines has adopted, the BIR [Bureau of Internal Revenue] is highly dependent on the voluntary compliance of taxpayers,” Abrea Consulting Group President Raymond A. Abrea said.
According to the Tax Management Association of the Philippines (TMAP), the Philippine tax system is not complicated but a complex one, since it requires a number of requirements, and taxpayers need to comply with various compliance rules.
“Currently, the tax collection in the Philippines has proven to be quite complex following the imposition of numerous requirements and multiple compliance rules,” TMAP President Malou P. Lim said. “These requirements are arduous, which can be considered as a big factor for the increase in the level of tax evasion in the Philippines.”
A recent study by the World Bank ranked the Philippines 115th out of 190 countries in terms of the ease of tax paying. This means the country belongs to the lower rung of territories where it’s difficult to pay taxes.
“In fact, it was reported that the Philippines requires 28 tax payments within a year, and tax compliance takes about 185.6 hours per year,” the TMAP said.
Among other things, the study also measured the ease of paying taxes across economies by assessing the time it takes for a medium-size company to prepare, file and pay its taxes; the number of taxes that a company has to pay; the method of payment; and the total tax liability as a percentage of commercial profits.
CTRP
THE Department of Finance (DOF) proposed the first package of its Comprehensive Tax Reform Package (CTRP), which aims to lower personal income-tax (PIT) rates and implement offsetting measures, to Congress in September last year. The proposals are being discussed by the Upper House.
Tax reform is one of the top priorities under the socioeconomic agenda of President Duterte when he assumed office in July last year.
Package 1 of the CTRP aims to lower PIT rates from 32 percent to 25 percent over a two-year period. The rates do not apply to the so-called ultrarich to keep rates progressive. The original proposal exempts 4.7 million taxpayers with a net taxable income of P250,000 and below from paying income taxes.
House Bill 4774, or the revised Package 1 of the CTRP, is expected to raise additional revenues for the government amounting to P206.6 billion in the first year of implementation.
Only with a sizable increase in revenues can the government meet its goal of drastically reducing poverty and transforming the country into an upper middle-income economy in 2022, Finance Undersecretary Karl Kendrick T. Chua said.
The additional revenues will be spent on infrastructure, human capital including education, health, lifelong training, and research and development and social protection for the poor and other vulnerable sectors.
Exemptions
THE package also includes lowering the rates for estate and donor’s taxes and expanding the value-added tax (VAT) base. However, Package 1 of the CTRP retains the exemptions enjoyed by senior citizens and persons with disabilities, and adjusting automobile and fuel excise taxes.
Estimated losses from the reduction of PIT rates is at P139.6 billion if approved this year and implemented in 2018. But the revenues from the offsetting measures to address the losses is projected to generate P162 billion.
The initial loss from the reduction of PIT rates during the first hearing on the package at the Ways and Means Committee was at P159 billion, while initial net gains is seen at P200.7 billion.
The revised plan also includes legislated administrative reforms in the DOF-attached agency the Bureau on Internal Revenue (BIR) and the Bureau of Customs. These reforms include improved fuel marking to prevent smuggling, the use of e-receipts, mandatory connection of the point-of-sale system to the BIR and the relaxation of bank-secrecy laws for investigating and combating tax fraud.
Compliance
ACCORDING to Abrea, “Voluntary compliance [with tax requirements] is entirely dependent on the understanding and willingness of taxpayers to comply and pay the right taxes.”
He added there are efforts from the government in terms of improving the tax system of the country. He pointed out that the DOF and attached agency the BIR still needs better resources to attain tax-collection targets.
Abrea said this was expressed by BIR Commissioner Caesar R. Dulay. “They lack resources to collect the huge revenue target of the government,” Abrea added. “They need more people and technology to ensure they assess and collect the right taxes without tolerating the corruption and inefficiency in our tax system.”
The TMAP said that, with the CTRP, the government is a step closer to achieving its goal of reforming the country’s complicated tax system.
“We recognize that the government is currently seeking to improve tax administration through the tax reform initiative,” Lim said.
Image credits: Roy Domingo