Phl revenue system unfair and outdated

CEBU, Philippines - Increasing tax rates is not the only option to increase revenue collection but rather improving the tax administration, doing so would offset the revenue loss from reduce tax charges, a tax lawyer said.

Corporate tax practitioner Jonathan Capanas said the government should not only focus on increasing rates but should instead look into businesses in the underground economy to boost tax collection.

“Ang atong tax administration efficiency is not that high,” Capanas told The Freeman in an interview. “So, mao ni atong angay tan-awon kay daghang leakages ug loopholes atong tax system gyod.” He is also Dean of School of  Law of  the University of San Jose – Recoletos and consultant on good governance of the Cebu province.

Unequal and outdated

Capanas described the country’s current tax system as highly unequal and outdated; he cited a person who earns higher income can possibly be paying higher taxes than a corporation.

The highest tax rate for corporations is 30 percent and for individuals is 32 percent.

Presently, the country’s income tax rates range from 32 percent for workers earning at least P500, 000 per year to 5 percent for those earning at least P10, 000 a year.

“If you talk about equity and fairness, it’s not fair for individuals paying more taxes than corporations,” he pointed out. “So, that alone will tell us there really is a need to rationalize or reform our tax system, and amend, if not revise, our tax law.”

The lawyer warned the country would eventually be lagging behind in the integrated Association of Southeast Asian Nations region, if it can’t amend its tax system ahead of the full economic integration next year.

The Tax Management Association of the Philippines said the Philippines has the highest income tax in the entire Asean region, stressing the need to bring down the tax bracket to make it equitable. TMAP has been supporting measures that aim to adjust the tax thresholds under the National Internal Revenue Code.

‘Phl taxation not competitive’

Investors normally consider a country’s tax system when planning to invest or put up a business. Capanas said the country is obviously not competitive in the area of taxation, saying its citizens and firms are paying higher taxes compared to its Asean counterparts.

However, Jose Hector M. Baronda, assistant chief of Bureau of Internal Revenue Cebu’s Legal Division, said reducing tax rates would surely affect the bureau’s revenue collection.

While the proposal for lower tax rates is certainly good for taxpayers, BIR Cebu regional director Hermeno Palamine said they also have to fulfill their mandate to collect sufficient returns.

“Naa gihapon gyod nay effect sa atong tax collection,” Baronda said.

The BIR already warned smaller revenues could hurt government spending which is vital in driving economic growth. Any tax reducing measure would eventually imply a fall in the revenue goal.

Positive outcome

But, Capanas urged BIR officials to see the positive outcome of lower individual and corporate income tax rates to the country – and that is, the surge of investments.

“If we lower our tax rates, more investments will come in. So, it will create more economic activities, it will generate more revenues ug daghan na mga newly-created businesses. So, mao ni mo-offset sa revenue losses due to the adjustment of the tax rate,” he explained.

He added the loss would just be temporary. Lower taxes would also mean workers would have higher take-home pay; meaning, they have more purchasing power that offsets the loss through value-added tax.

For the government to invite more investors, Capanas said it should also address concerns – other than the tax issue -- such as rising power rates, industrial fees, infrastructure problems, licensing and the so-called bureaucratic red tape.

“We lower tax rates because we hope to attract more investments. Pero di pud nato kalimtan to address other areas because these issues may put off investors,” he pointed out. “Fundamental man gud ni siya nga issues gud. Remember, that taxation is just one of the factors considered when a prospective investor invests.”

Meanwhile, several tax-related measures are still pending in Congress, aiming for more equitable, progressive and competitive tax system.  (FREEMAN)