DoF lines up more tax reforms

THE DEPARTMENT of Finance (DoF) plans to submit to Congress this month the tax reform packages on property valuation and passive income.

“By the end of the month, we will submit package three and four sabay (simultaneously),” Finance Secretary Carlos G. Dominguez III told reporters late Thursday.

Mr. Dominguez said that the two reform packages are “mostly revenue neutral.”

The third package seeks to provide a harmonized valuation scheme for national and local taxes.
“For the real estate — hindi naman samin mapupunta yung pera (collections will not go to the national government) — we just want to make sure that the appraisal is done in an internationally accepted way and is done regularly,” Mr. Dominguez.

“Now the local government, they will have the right to tax to set the rate. We just want the valuation [standardized] because the valuation now is really crazy.”

Currently, the government has two valuation schemes for real property: zonal values prepared by the Bureau of Internal Revenue to serve as basis for estate and capital gains taxes and fair market values used by local governments to compute annual real property taxes.

The DoF’s Bureau of Local Government Finance has said that the proposed reform should ease pressure on local officials — who are elected every three years — from their constituents to keep real property assessments low, resulting in delayed review of property values despite the requirement to do so every three years.

DoF said that the reform will also supplement the unitary six percent estate and donors tax provided by the Tax Reform for Acceleration and Inclusion law.

“And then the other thing also is the higher tax on real estate, you will remove the speculative aspect of it. Because you know, it’s going to cost you too much to hold undeveloped idle real estate. So you want to force them to develop it,” Mr. Dominguez explained.

The fourth package, meanwhile, seeks to streamline taxes on financial investments.

“In the financial taxes, the goal is to simplify it. We have 80 different types of tax in financial products and instruments. We’re working very hard we were able to reduce it to about 42. Ang dami palang batas diyan,” said Mr. Dominguez.

The DoF earlier said that the package includes reduction of interest income tax earned from peso-denominated deposits to 12% from 20% and at the same time increase capital income tax rate for dollar deposits, investments, dividends, equity and fixed income, among others, to the same rate. This move would take out the arbitrage among financial products.

The DoF has also said that it would make them more inclusive by taking out the interest income tax for deposits with a minimum deposit period of five years.

The department targets Congress to approve all packages this year, including the Package 1B on general and estate tax amnesty; the second package on corporate income tax and fiscal incentives; and the Package 2+ on further hikes in tobacco and alcohol taxes, as well giving the government a bigger share of mining revenues. Packages 1B and 2, and the tobacco part of Package 2+ are now in Congress.

source:  Businessworld