THE Department of Finance (DOF) has dismissed critics’ claims reforming government provision of incentives will drive away businesses that are already operating, or planning to operate, in the Philippines.
Businesses have other concerns than tax perks, according to Finance Undersecretary Karl Kendrick T. Chua.
Chua said investors cited four more important and pressing concerns than tax perks that they want the Philippines to address for them to bring in more investments. These concerns are infrastructure gap, inefficiency in delivery of government services, corruption and the high cost of doing business in the country.
Chua cited the results of the 2017 World Economic Forum (WEF) survey as bases for his view. He added that tax rates and incentives only ranked fifth among the concerns raised by investors based on the survey.
“That the government will put ‘a stop to current incentives’ is a misconception of the proposed modernization of fiscal incentives. This is simply not true,” Chua said. “Incentives will remain to be granted, but more judiciously this time so that there is a better balance between the investment and fiscal sustainability goals. The DOF recognizes the role of incentives to encourage investments.”
The DOF earlier announced the Duterte administration is pushing for income tax reforms in the corporate sector to level the playing field of business and make it more equitable, transparent and accountable. This, the DOF has said, could be achieved by removing perpetual tax holidays the department said is only enjoyed by only a select group of investors. The DOF has said such practice is unfair to smaller enterprises that pay regular tax rates.
Chua made it clear that far from removing all fiscal incentives for businesses, the Duterte administration merely wants to harmonize and modernize such perks under Package 2 of the Comprehensive Tax Reform Program (CTRP) to ensure these are “targeted, time bound, transparent and performance-based.”
The paramount objective of the Tax Reform for Acceleration and Inclusion (Train) plus the other CTRP reform packages, alongside making taxation simpler and more equitable, is to raise sufficient revenues for the Duterte administration’s ambitious “Build Build Build” infrastructure buildup and other priority programs for inclusive growth, according to Chua.
On top of modernizing tax incentives, he said the government must tackle the “real issues” raised by investors in the WEF survey, along with improving human capital, investing in infrastructure and relaxing foreign ownership restrictions to attract more investments.
Chua said “a proper cost benefit analysis is now being done to determine the fiscal incentives that should be given to certain businesses.”
“Rather than provide incentives in perpetuity to only a select set of industries without any accountability, the government must address the more urgent concerns of modernizing infrastructure and investing in education and health to give all businesses, whether local or foreign, and whether large or small, a level playing field,” he added.
Chua said that given the consultative approach of the DOF in pushing for tax reform, it looks forward to the inputs of the various sectors on the department’s proposal to reduce the corporate income tax complemented by modernization of fiscal incentives. The latter two comprises Package 2 of the CTRP.
“Incentives should not be used as a band-aid solution,” Chua said. “This is what the country has been doing for 50 years so it is high time to change this misguided policy.”
Chua said incentives will still be provided to business activities so long as they qualify in the 3-year Strategic Investment Priorities Plan (SIPP) and adhere to the key principles of being performance-based, time-bound, targeted and transparent.
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How can that be? Because the wealthy conduct progressively more transactions and larger transactions. So, unlike a flat tax on income, the transaction tax does not shift the tax burden onto the poor or middle class. The poor will have to pay something, but it would be an extremely tiny amount. For example, for someone who earns PHP20,000 and spends PHP 20,000 in a year, their transaction taxes would total PHP 70.
The Transaction Tax is able to achieve something no tax system has been able to do yet. It has found a single universal tax rate that is naturally progressive. This is significant because when every Filipino and every Filipino company is paying the same tax, we know inherently that were all contributing equally.
How would the system work? The transaction tax would be collected at the time of each transaction and routed directly to the Philippines Treasury over our secure electronic banking network. Billions of digital payments would flow into the Philippines Treasury every day, providing our government with a steady “cash flow”. No buyer or seller would be responsible for collecting the transaction tax. It would be a direct transfer from the buyer to the Philippines Treasury, and from the seller to the Philippines Treasury. The transaction tax would never record the sort of personal information that your credit card company or your retailer would collect. All of your transaction payments would be kept secure and private only the amount of the transaction would be recorded, not the purpose, time or location.
Cash purchases could potentially avoid the tax, but they would not be banned. Instead, cash withdrawals would be charged a fee of 0.875%. So to counteract those unreported transactions by a fee on cash withdrawals 2.5 times (0.875%) the transaction tax to cover that. This fee would apply to any money that is taken out of the system in order to discourage corporations and wealthy investors from shifting their money overseas to avoid taxes.
Note: Given BSP statement “Filipinos made approximately 2.5 billion payment transactions per month, amounting to about $74 billion per month” for 2016.
Sample computation: (U$D 74 Billion x 12 mos) x PHP 50.00 ForEx rate) x 0.07 tax rate) = PHP 3.108 Trillion tax return for 2016. This initial tentative projections will improve once the kinks in the PhilPaSS – based NRPS and ECPS is worked on, as it is being phased in.
With the Transaction Tax, millions of transaction payments would be collected, and deposited in the Philippines Treasury, each hour without ever being touched by human hands. Every time you would buy something whether it was a sandwich or a second home a tiny payment (0.35%) would be collected from you, and from the seller, and transferred directly to the Philippines Treasury over our nation’s RTGS – PhilPaSS – based electronic banking network.
The Transaction Tax would completely replace income taxes, corporate taxes, excise taxes, payroll taxes, capital gains taxes and estate taxes. There would be no more tax returns, audits or deadline. Collecting the tax at the moment of a transaction would be simple and efficient. It would cut out all the opportunities for fraud, corruption and political influence. And it would free up billions of hours and trillions of dollars that we waste on tax compliance.
It’s the smallest tax possible. Right now, our budget is funded solely from gross income salaries, investment profits and business profits minus deductions. That is only a sliver of our entire economy, yet it has to provide trillions in taxes every year. The natural result is high taxes. And because of these high taxes, we all try to shift our tax burdens onto others, hoping we aren’t the one stuck with the bill.
The Transaction Tax would reverse this vicious cycle and expand the tax base a hundred fold. All transactions including trades in stocks, bonds, options and currency would be treated exactly the same. With every sector of the economy contributing, and everyone pulling together, everyone’s taxes would be dramatically lower. And with low taxes, we would stop trying to shift our burdens onto someone else.
It treats all of us equally (No Free Rider). Under the Transaction Tax, no individual or company gets special treatment through the tax code. Everybody contributes something to our government, our national defense, our social programs and paying off our national debt. And with everybody contributing something, we all would feel a lot better about paying our share.
And it rewards hard work. The transaction tax is not just a small tax, it’s also a flat tax. That means that no matter how much money you make, you will always pay the same 0.35% tax. You and all Filipino Billionaires would be paying the same tax, and you both can chase your entrepreneurial dream and keep the rewards of your hard work. The Transaction Tax is very small and very simple to calculate.
It’s not regressive. The Transaction Tax is flat, but inherently progressive.
The movement of funds is taxed and collected immediately without recording who or what was the source of funds or the recipient. This automated system would totally eliminate the need for filing tax returns and information returns, freeing individuals and businesses of enormous costs of tax compliance and greatly reducing the government’s costs of collection and enforcement.
Most of the revenues would be collected from the massive volume of stock and bond trades and foreign exchange transactions none of which are now taxed.
One might be concerned that imposing taxes on these types of transactions would stifle economic activity in these critical areas, however, the tax is so small it would be dwarfed by the simple fluctuations in price that typically occur during the trading process. Although “day trading” and short term foreign exchange transactions will certainly decline, the reduction in these “hot money” transactions are only likely to reduce speculative market activity, thereby reducing the volatility of prices in these markets.
This is done by creating a ‘tax wedge’ between the bid and ask price of financial assets, the Checkbook tax provides incentives to lengthen the average holding period of financial instruments. It thereby reduces the present disparity between short-term financial time horizons and long term real investment time horizons.
It is one very low universal tax rate, automatically and immediately collected. It ELIMINATES tax returns, lobbyists, and special deductions.
It ELIMINATES the huge cost to taxpayers of paying taxes, the cost of the government in collecting taxes, and the cost of taxes that should have been collected but were avoided by cheaters, by taxing every electronic transaction.
Every time the money moves, the government gets a cut.
Since this applies to everyone equally, it is impossible to argue that it isn’t fair – and it would MASSIVELY shift the tax burden back where it belongs – on the Top 1%
Since the volume of all transactions is estimated to be 100 times larger than the current tax base, the proportional tax rate / flat tax rate needed to raise the same amount of revenues is just a hundredth of the current average tax rate. So if transactions stayed at their current level, the APT tax rate would be three tenths of one percent (0.3%) on each transaction.
Though future total transactions may fall by 50%, the revenue neutral APT tax rate would only be six tenths of one percent (0.7%) split equally between the buyer and seller in each transaction so each would pay 0.35%.
Every bank, brokerage, or other financial demand deposit (checking) account established by a person, corporation or other taxable organization will pay 0.35% on ALL funds moving IN OR OUT of that account. The tax would be automatically transferred to a government tax collection account in the same institution. This will be true for stock, bond, options, and futures traders and investors; foreign citizens, companies and governments exchanging their currency ; a couple buying a new car ; and, a teenager buying movie tickets with a credit or debit card.
How. We can reignite our economy by re-inventing taxes. This is done by capitalizing on our BSP’s RTG / PhilPaSS financial data processing technology, we can create a tax system for the 21st century that is simple to understand and easy to administer.
The tax is automatically assessed and collected when transactions are settled through the BSP’s RTG / PhilPaSS electronic technology of our banking / payments system. The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly broad based than the conventional income or consumption tax base.
The wealthy carry out a disproportionate share of total transactions and therefore bear a more progressive tax despite its flat rate structure.
The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost.
Over time as it is phased in it allows the ELIMINATION of personal and corporate income taxes, LGU taxes, capital gains taxes, fuel, gift, estate, excise, and sales taxes, etc.
The BIR and BOC can now be abolished. Paging President Duterte!
The tax would be progressive because wealthy individuals and corporations conduct the most transactions, and it would be fair because no interest group could avoid it through loopholes or illegal means. With everybody paying their equal share, we would all benefit from much lower tax burdens, more money in our pockets and a growing economy. Again , this is done by taxing aLL transactions that now escape taxation, particularly financial transactions including stock purchases and currency trades and the transfer of funds among multinational OBU – FCDU corporate bank accounts to avoid taxation.
As applied to the example of two households with identical incomes, a wise tax system might want to reduce the tax burden of one family that incurred heavy medical expenditures, suffered the ravages of storm damage, or bore costs to move to a new job, compared with the other family that had no unusual expenditures. Applying different tax rates to the two families in similar circumstances,however, is an entirely different matter and would violate the norm of equity predicated on equal treatment under the law.
A Payment and Settlement Transaction ‘Checkbook’ Tax – ‘Checkbook’ Tax.
(No Free Rider, Low, Universal and Revenue Neutral Transaction Tax).
The DBCC says that with the implementation of the first tax reform package next year, the DBCC expects 2018 revenues to hit P2.841 trillion, representing 16.3% of GDP. The government’s revenue program is expected to improve to P4.5 trillion, representing 17.8% of GDP, by 2022. In terms of expenditures, the DBCC pegged the figure for 2018 at P3.76 trillion, equivalent to 21.6% of GDP. The expenditure program is projected to hit P5.66 trillion by 2022, equivalent to 22.3% of GDP.
This is so pathetic.
Here is a ‘best scenario’ solution.
– A Real Time Gross Settlement / Philippines Payment and Settlement (BSP’s RTG / PhilPaS) System – based, Demand Deposit Account (DDA) Payment Settlement Transaction Tax (PSTT) on all Automated RTGS Phil PaS System processed Automatic Payment Transaction (APT).
Objective:
– to offers fairness, simplicity, and efficiency.
– to tax the broadest possible maximum tax base and at the lowest possible minimum tax rate (Mini – Max Tax).
– to significantly improve economic efficiency, enhance stability in financial markets,
– to reduce to a minimum the costs of tax administration (assessment, collection,and compliance costs).
– Moderation of volatile, harmful, high-frequency, excessively speculative and destabilizing Hot Money Flows. It is a tool to selectively discourage excessive speculation without discouraging any other type of financial activity.
We have a rhetorical question for the DoF. How can a Flat Transaction Tax / Proportional Transaction Tax be also Progressive? This will lead to a a fair, Simple (less – complex), Low cost (efficient) Tax System.
Why a Flat transactional tax?
First,the flat tax is fair on the basis of historical and commonsense notions of fairness.
Second, the flat tax is fair based on who pays, especially when compared with the current income tax system.
Third, a flat tax enjoys wide support from all sides of the political spectrum and the media.
A flat rate of taxation is not a novel idea. Flat rates are in wide use throughout the Philippines. The best example is the GSIS and SSS payroll tax, which levies one uniform rate on all employees and the self-employed. All workers are subject to a uniform tax rate for PhilHealth and Pag – IBIG too. The VAT tax rate is the same for all consumers, rich and poor alike. Property tax rates on assessed valuations of real property are the same for all homeowners. All these tax rates are proportional to income, purchases, or property values. In general, government licenses and fees for government services are fixed regardless of income or wealth.
Except for income taxes, flat-rate taxes are in wide use by, and supply most of the revenues for the Philippines. When economists make judgments about fairness, they most often invoke the concept of equity. As it applies to taxation, and tax burdens in particular, equity has historically meant equal treatment of equals. This usage conforms to constitutional guarantees of equal treatment before the law. To discriminate among equal classes of taxpayers is arbitrary, capricious, and generally regarded as wrong. In the dictionary senses listed above, discriminatory treatment is not just, impartial, or consistent with logic or a set of rules. So, for example, if two families earn identical incomes, the doctrine of equity implies that each should pay identical amounts in taxes.
In law, equity has a different, specific meaning. Here, equity refers to justice applied in circumstances covered by law yet influenced by principles of ethics and fairness.