THE PHILIPPINES has the unfortunate reputation of imposing high tax rates, especially in comparison with our neighbors within the Association of Southeast Asian Nations. The 30% corporate income tax and 32% maximum income tax on individuals imposed under our National Internal Revenue Code (or Tax Code) are among the highest in the region.
Imagine then how it feels to bear the burden of taxation two-fold.
Our current tax system presents us with measures on how to avoid what is commonly known as double taxation. This is best demonstrated by our various tax treaties with other countries, allowing for income tax exemption or preferential tax rates on certain income payments made to residents of these treaty countries.
However, in some instances, our tax laws might appear to be less keen on avoiding double taxation.
In one case for example, after paying its local business tax liability to a certain city government, a cable television operator was billed by said city for an adjustment. Dutifully, the cable operator paid the amount. Upon inquiry as to the nature of the adjustment, the taxpayer learned that it represents local franchise tax. Perhaps baffled by the imposition of both business tax and franchise tax, the cable operator wrote a letter of protest to the office of the city treasurer and requested for cancellation of said adjustment and its corresponding refund.
Since the taxes were levied twice on the same gross receipts by the same taxing authority, the cable operator argued that the imposition of both business tax and franchise tax amounted to unjust and improper double taxation. The cable operator also contended that since it is a holder of a legislative franchise, its only obligation should be the franchise tax, instead of the business tax.
In denying the protest and claim for refund, the city treasurer justified that business tax and franchise tax are separate and distinct taxes. They are of a different nature and imposed under different provisions of the city’s local revenue code.
The cable operator brought its claim for refund before the courts. On appeal, the Court of Tax Appeals (CTA) upheld previous decisions that the imposition of business tax and franchise tax by the city government does not constitute improper double taxation (or “direct duplicate taxation”). What the law prohibits is the imposition of two taxes on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction and during the same taxing period; thus, double taxation must be of the same kind or character to be a valid issue.
In applying this definition, the CTA stated that while the business tax and the franchise tax are both based on gross receipts and sales, they are different in nature or character. The franchise tax is imposed on the exercise of enjoying a franchise, while the business tax is imposed on the privilege of engaging in one’s line of business.
Subsequently, the CTA en banc and the Supreme Court upheld the denial of the claim for refund.
Under the Local Government Code (LGC), which serves as the foundation of any local revenue code that may be enacted by a specific Local Government Unit (LGU), the local franchise tax and the local business tax are imposed under separate provisions -- Section 137 and Section 143, respectively. While the courts saw legal basis to take the view that the imposition of both taxes would not be tantamount to double taxation, this author cannot help but wonder whether duple taxes over the same transaction would be too onerous for local taxpayers and discouraging for would-be investors, who are already saddled by a crippling tax rate in this region of Asia.
As mentioned by the cable operator in the case, not all LGUs strictly impose the local franchise tax, even with the existing provisions under the LGC and an LGU’s revenue code. Considering the apparent finality of the cable operator’s case, it would not be farfetched to think that many LGUs might take advantage of this opportunity to maximize their tax collection. After all, the local franchise tax appears to span a wide coverage of franchise grantees, such as telecommunications, broadcasting, and utilities industries.
While our lawmakers are making progress on easing the burden of taxation -- particularly with the passage of Republic Act No. 10653 increasing the amount of non-taxable 13th month pay and other benefits from P30,000 to P82,000 -- one can say that there is still a long way to go towards making our current tax system more investor-friendly. Perhaps beyond rhetoric, more headway is needed to dispel the assertions often said of Philippine taxation, that of being one of the highest in the ASEAN region.
Marion D. Castaneda is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
(02) 845-2728
marion.d.castaneda@ph.pwc.com
source: Businessworld
No comments:
Post a Comment