Jesli Lapus bats for simple net tax

Rep. Jesli Lapus of Tarlac is one of a handful of current legislators with a technical understanding of taxation. As chairman of the House ways and means committee, Jesli spearheaded the congressional approval of the EVAT last year, an important factor in slowly regaining the confidence of the business community on our country’s fiscal health.

But Jesli knows the reform of the EVAT Law (to make it more equitable by including previously exempted professionals like lawyers and doctors), is only the beginning of real fiscal reform. The agenda of tax reform measures is still pretty long, reason enough for a growing move within the House to keep Jesli in place as head of the ways and means committee. Jesli’s party, the NPC, has also made a party stand in his support.

Jesli, however, is not as focused on the politics of committee chairmanships as he is on pending tax measures. A number of important measures, such as the adoption of the Simplified Net Income Tax (SNITS), remain to be enacted to law.

The return of SNITS was why I called him up early this week. I was wondering whatever happened to this Malacañang endorsed measure, which was often mentioned whenever Ate Glue talked about fiscal reform. I have advocated in this column the adoption of SNITS as a means to make our tax system more equitable to salaried workers. The fixed income or salaried class of workers have been carrying the burden of taxes paid by individuals for a very long time.

Jesli offered some statistics that confirmed my worse suspicions. Of the P100.9 billion paid by individual taxpayers in 2004, salaried workers paid P84.3 billion and self-employed as well as professionals like lawyers and doctors paid only P4.8 billion. That’s because of inherent difficulties in tax administration in the present system. 

The difficulties arise in the need for BIR to ascertain not only the correctness of gross revenues declared by taxpayers but the validity of each and every item of expense claimed as a deduction. This has given tax examiners wide latitude of discretion, often resulting in under-the-table deals and taxpayer harassment. This has also undermined tax collection efforts and contributed, to a large extent, to the low quality of tax ethics among our taxpayers.

You don’t have to be a fiscal expert to realize that many business expenses are being overstated.  Even non-business related expenditures or expenditures which have a personal element to them are being claimed as deductible expenses for income tax purposes. 

I recall having a conversation with Sen. Juan Ponce Enrile at the 365 Club when Congress was working on the CTRP some years ago. I protested the abolition of SNITS, and I argued with Sen. Enrile that it should be maintained if only because it reduces the contact of taxpayers with BIR examiners and removes discretionary powers of examiners that are abused and are the root of corruption.

But Senator Enrile, the fiscal expert that he thinks he is, maintained that we should, in his words, trust our BIR examiners. I had visions of Johnny in Wonderland but he was also supported by DOF fiscal experts who also argued SNITS reduced the potential tax take of government. I didn’t have any statistics to back up my suspicion, but I thought the government would lose more by removing SNITS and going back to the bloody examination of returns.

Jesli now offers me data that proves my suspicions right. In 2003, the BIR data show that total deductions reduced gross revenues by 98 percent, hence, leaving merely two percent as taxable income. There was no improvement from the pre-CTRP years. 

Hence, despite limitations on certain business deductions, that was at the core of the CTRP, actual income tax collected remains small. This gives rise to inequity between compensation and business income earners. The compensation income earner pays the full income tax because of the final withholding tax system while the business income earner is able to abuse the allowance for business expenses and deductions, and with the help of his friendly revenue examiner, to reduce his income tax liability.  

That’s why it is not surprising that even if the Philippines has the second highest rate of corporate tax in the region at 32 percent, a factor that negatively affects our attractiveness to investors, our tax effort has been the lowest. We are next to Laos which imposes a 35 percent corporate tax. Developed countries in the ASEAN region are at the lower end of the scale, e.g., Singapore has 22 percent and Malaysia imposes a 28 percent tax. Indonesia’s top rate is 30 percent while Thailand, Brunei and Myanmar levy a 30 percent tax. 

SNITS, Jesli explains, aims to make tax compliance simple and relatively painless and, therefore, encourage more people to pay taxes. Only direct costs incurred in the production of goods and services shall be allowed as deductions from gross revenues in order to arrive at the tax base which is simplified net income. Certain items of expense that are currently allowed as business deductions shall be disallowed. These expenses are the commonly abused expenses.  

The simplified net income tax system will expand the income tax base and enhance tax revenues of government. SNITS aims to reduce the tax gap or tax leakage on individual income taxation, specially for individuals engaged in trade/business and/or practice of their profession. The best part of SNITS is the option it offers the taxpayer to get a 40 percent optional standard deduction (OSD) in lieu of the expenses/deductions which are difficult to determine.

Jesli estimates incremental revenues of approximately P10.2 billion will be generated by adopting SNITS. The House passed the measure already. Hopefully the Senate works on it quickly enough to make its benefits to both the taxpayers and the National Treasury felt sooner.

Other vital tax measures Jesli shepherded through the House and which are now pending in the Senate are the laws amending the BCDA Charter to benefit investors in Clark, John Hay and Poro Point. Many investors were told that they would enjoy tax benefits similar to Subic but the Supreme Court ruled otherwise. To maintain our credibility to investors, a measure that grants an amnesty as well as another measure that grants the privileges, must be passed.

The other important measure being worked on by Jesli is the consolidation of various laws granting fiscal incentives of one kind or another. At last count, there are 120 such laws to reconcile and consolidate for easier implementation and control. We also have to review if some of those tax perks are still necessary. Given the many vested interests, this is one ambitious task that Jesli must work closely with his Senate counterpart, Sen. Ralph Recto.

Jesli has his work cut out for him. Allowing him to continue as the permanent chairman of the House ways and means committee is the only way to go.

Rejection rebound

Here’s Dr. Ernie E.

A guy goes up to this girl in a bar and says, "Would you like to dance?"

The girl says, "I don’t like this song, but even if I did, I wouldn’t dance with you."

The guy says, "I’m sorry, you must have misunderstood me, I said you look fat in those pants."

Boo Chanco’s e-mail address is [email protected]