PROPOSALS to lower income tax rates could be fast-tracked if Congress enacts two measures that will strengthen the Bureau of Internal Revenue’s (BIR) power to examine taxpayer accounts, senior Finance officials told lawmakers.
Internal Revenue Commissioner Kim S. Jacinto Henares said in a congressional hearing that the pace of discussions on the comprehensive tax reform package would depend on Congress’ willingness to repeal the bank secrecy law and allow BIR to scrutinize deposit accounts for tax-related audits.
Congress must likewise amend the anti-money laundering act (AMLA) and add tax evasion as a predicate crime, she added.
“If the Congress and Senate are willing to do these two things, then the discussion, I think, will be faster. But if the Senate and Congress are not willing to do these two things, then the discussion will also be more difficult,” Ms. Henares said in response to lawmakers’ queries.
Several lawmakers have introduced measures that would bring down corporate and personal income taxes to around 25% from the current 32% rate and align the country’s rates with those of its Southeast Asian peers.
However, Ms. Henares cautioned against slashing income tax rates without a measure that would offset revenue losses.
“We have to balance the revenue and if we don’t have transparency, we will not be able to collect the revenue required to replace whatever losses that will take place,” Ms. Henares said.
Department of Finance (DoF) Secretary Cesar V. Purisima, for his part, said reforming the country’s taxation system should include addressing BIR’s “handicaps” in going after tax evaders.
“I think those are things that we have to look at because if you’re able to do so, then you give space to adjust different parts of the tax structure. That’s why it has to be a holistic approach,” Mr. Purisima said.
A proposed comprehensive tax reform package has been pending with the President for approval before the measure is submitted to Congress. Broadly, the measure seeks a “holistic” approach aimed at both increasing revenue while simplifying the income tax system.
Mr. Purisima also cited the possibility of expanding the coverage of value-added taxes (VAT) to align the country’s collections to the “ideal” ratio of 12% of gross domestic product from the current 2.5%.
“Clearly there are so many ways to approach it. As we see it, it has to be a holistic process because we don’t want to create imbalances that would affect our fiscal viability,” Mr. Purisima said.
Republic Act no. 1405 and Presidential Decree no. 1792 consider bank deposits as confidential in nature unless authorized by the Monetary Board based on suspicion of fraud. No law has been passed amending the country’s bank secrecy laws despite calls from tax authorities to repeal the rule.
Senators said they support such proposals.
“I will support that move. In 2003, while amending the AMLA, I had that amendment but my colleagues removed it,” Senator Sergio R. Osmeña III, Chair of the Senate’s Committee on Banks, Financial Institutions & Currencies, said in a mobile phone message.
Senator Juan Edgardo M. Angara, chair of the Senate’s Ways and Means Committee, said for his part he is “willing” to hear DoF’s proposal.
“We must be open to new proposals and the bank secrecy law was enacted way back in the ’70s when there was capital flight from the country. We just must ensure that there are adequate safeguards that are in place to protect innocent individuals from harassment or undue security risk,” he said via text message.
Lawyer Terrence Conrad H. Bello, President of the Tax Management Association of the Philippines, said in a mobile phone message the two measures should not serve as a precondition to the reduction in income tax rates. He added an adjustment in tax rates has long been overdue.
“The repeal of the bank secrecy laws and tax evasion as a predicate crime are separate proposals that should be carefully studied and deliberated upon. The immediate passage of income tax reform should not be dependent on these two measures or proposals,” Mr. Bello said.
Business groups said they would weigh in on the issue once the executive submits its proposal to Congress, but noted the need to reform the country’s bank secrecy and tax evasion laws.
“The business community will also discuss these possible bills once they are included in the legislative mill and will ensure that we provide our inputs into the process. Business is keenly aware though that if we lessen the tax intake, we must find other sources and/or plug more leaks and/or cut costs,” Peter Angelo V. Perfecto, Executive Director of the Makati Business Club said via text.
“Lifting of bank secrecy and getting tough on tax evasion are some of these options but we must explore others and find the most effective options,” he added.
John D. Forbes, senior advisor at the American Chamber of Commerce of the Philippines, said in a text message: “If President Aquino has approved the comprehensive tax reform proposal of DoF, the business community would be very interested in knowing the details. Bank secrecy in the Philippines can protect many kinds of illegal financial actions and needs reforming.”
BIR’s collections in the first half totaled P705.87 billion, up by 10% year on year but 13% short of the target for the first six months of 2015.
source: Businessworld
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