Gov’t mulls shift from net to gross income taxation

To plug the country’s yawning budget deficit, government economic managers are discussing a possible shift to a gross income tax with a proposed rate of 10 percent.

The gross income taxation scheme would be applied both to individual and corporate income.

From January to April this year, the country’s budget deficit already amounts to P64.7 billion.

The full year budget deficit target for this year has been pegged at P197.8 billion.

A gross income tax, particularly for corporate income, would mean that only the cost of goods sold or direct cost of production of goods and services would be allowed as deductions.

Under the current net income taxation, individual and corporate income are allowed a number of deductions.

Individual income is subject to a tax ranging from five percent to 32 percent depending in the net income.

Corporate income is subject to a flat rate of 32 percent.

The proposed gross income tax would supposedly simplify the tax structure as well as ease tax administration since the Bureau of Internal Revenue (BIR) would be able to concentrate only on verifying the gross revenue instead of scrutinizing the allowed deductions under the current net income taxation scheme.

A gross income tax would supposedly improve tax compliance and increase government revenue.