Compromise on tax reform likely

MANILA, Philippines - A compromise between the executive and legislative departments on income tax reform is likely if only to save the Aquino administration’s political capital en route to the upcoming presidential elections, a think tank said yesterday.

“The chairman of the Ways and Means Committee of the House of Representatives has told us that he is not backing down from pushing for the proposal. Will he succeed without the President’s blessing? We doubt,” economists at GlobalSourcePartners said in a market brief.

“However, for political reasons, a compromise bill is possible in our view,” analysts Romeo Bernardo and Marie Christine Tang said.

The Aquino administration has bucked proposals in the House and the Senate seeking to lower individual income taxes, saying adjustments could result in P30 billion in annual revenue losses for the government.

Currently, there are 10 bills pending before the House Ways and Means Committee seeking such reform, the most famous of which was House Bill 4829 from Marikina Rep. Romero Quimbo that adjusts income tax brackets, specifically increasing the income which is considered taxable.

At the Senate, three proposals are pending at the committee level led by Senate Bill No. 2149 of Sen. Sonny Angara, who wants the maximum income tax of 32 percent reduced to 25 percent.

According to GlobalSourcePartners, threat of a presidential veto may stop the bills’ proponents from pushing with the original versions of their bill, although negotiations – which Malacañang said are ongoing – may result in a compromise.

One feature which the Malacañang may agree to would be adjustments to tax rates to consider inflation. This means that income brackets where taxes are based could be widened to consider for the present value of money when price increases are taken into account.

This, in effect, would leave the current tax rates in place with only the taxable income changing, the think tank explained.

“It would then be up to the next administration to pursue a comprehensive tax reform program that would broaden the tax base and ensure enough revenues to fund inclusive growth targets,” GlobalSourcePartners said.

Sought for comment, Bureau of Internal Revenue (BIR) Commissioner Kim Jacinto-Henares said “a compromise, at this point, is unlikely.”

“Even the House leadership itself said the bill (to reform income taxes) is already dead so how can there be a compromise when even the legislature, where these proposals come from, are no longer talking about the bill?” Henares said in a phone interview.