Repealing bank secrecy law to weaken depositor’s trust

CEBU, Philippines - A bank official yesterday warned the government of the effect of its bid to repeal the Bank Secrecy Law which it says should be the counterpart move should income taxes be cut.

Cebu Bankers Club President Maximo Eleccion said lifting the BSL could be detrimental to the growth of the banking industry, warning that it might result to "deposit flight".

Eleccion was sought for reaction to the call of the Department of Finance to lawmakers to strengthen the power of the Bureau of Internal Revenue to examine taxpayer accounts.

The BIR has proposed to lift particular provisions of the BSL for tax purposes and make tax evasion as a predicate crime to money laundering. The Congress has already urged the BIR to submit a draft bill amending the law's provisions as soon as possible for it to be immediately discussed by legislators.

Republic Act 1405 or the Law on Secrecy of Bank Deposits prohibits the disclosure of or inquiry into deposits with any banking institution. It states that bank deposits are considered confidential and may not be examined, inquired and looked into by any person, government official, bureau or office unless the depositor permits. No law has so far been passed amending the Philippine Bank Secrecy Law.

Eleccion explained that lifting BSL would likely result to private hoarding as it would discourage depositors to put money in banks.

"The confidence of depositors on the banking industry might be affected," Eleccion told The FREEMAN in an interview yesterday.

The money from depositors, the official said, is supposed to be properly used by banks for authorized loans to borrowers, pointing out that less deposits could mean higher lending cost for the banking public.

He said earnings on deposits are already subject to 20% final withholding tax which banks remit to the BIR.

But the BIR wants the BSL be amended so it will be allowed to scrutinize deposit accounts for tax-related audits and pursue tax evasion cases against individuals.

Eleccion explained that currently, tax authorities are only allowed to examine a deposit account with the consent of the depositor and in case of court cases like tax evasion.

He said he understands that the ultimate goal of the BIR is to collect enough taxes and meet its targets but he also urged the agency to capitalize on tax collection efficiency to increase revenues.

The bank official further urged the BIR to strictly enforce taxation laws and focus on large taxpayers to increase its revenues.

"[Efficient] tax administration -- that should be the exchange," the CBC official said, referring it as way to offset revenue losses that BIR claims if income tax rates are to be slashed.

On Monday, President Benigno Aquino III already rejected measures to bring down income tax rates, believing that it will significantly result to reduced revenues and increased deficit. These, in turn, could potentially affect the country's economic performance, Aquino claimed.

Earlier, some business leaders in Cebu had expressed their support to proposals to reduce income tax rates, deemed to be one of the highest in South East Asia.

The presidents of the Mandaue Chamber of Commerce and Industry, Financial Executives Institute of the Philippines-Cebu, Filipino-Cebuano Business Club and the CBC were one in saying that lower income tax rates would pave the way for higher purchasing power of the people, which then could translate to high private consumption in the economy.

Even with the President's disapproval, legislators are still to pursue the pending measures.

The Finance department has been proposing for a comprehensive tax reform package pending for the President's nod. Such reform seeks to increase revenue while simplifying the income tax system.

The DoF also seeks for a holistic solution for an effective tax system and for removal of rules and laws that prevent the increase in revenue collection. (FREEMAN)