DOF to refine tax proposal

The Department of Finance (DOF) is studying the possibility of further refining the proposed financial institutions tax (FIT) that would replace existing taxes slapped on banks' transactions.

FIT is expected to replace the gross receipts tax (GRT) and the documentary stamp tax (DST) to simplify the taxation system in the banking industry using the net income levels.

"We will re-examine the FIT. There may be further refinements. For instance, I have talked to some insurance companies and they told me that they remain highly taxed," the finance chief said.

Congress was supposed to pass the FIT into law last year but failed to do so. This prompted the Bureau of Internal Revenue (BIR) effective Jan. 1, 2000, to implement the 10-percent value-added tax (VAT) on banks and other financial institutions under the Comprehensive Tax Reform Law. The VAT on banks was deferred for two years pending drawing up of the implementing rules and regulations of the particular law.

The banks requested for the deferment of the VAT till mid-February this year but once implemented the payment of the VAT will be retroactive.

Malacañang recently moved for further deferment of VAT on banks at least for another year pending the approval of the FIT scheme. Pardo said they expect Congress to approve the deferment soon.

Banks have requested for the deferment of the VAT because it will increase their intermediation costs.