Tax sparing spared

If a taxpayer was given two benefits which cannot be simultaneously availed, who should choose which benefit to avail -- the government or the taxpayer?

If we apply Revenue Memorandum Order (RMO) No. 27-2016 dated June 23, 2016 with regard to the final withholding tax (FWT) on dividends paid to foreign corporate shareholders, it appears that it is the government who can choose. However, the effectivity of this RMO was suspended by the BIR under Revenue Memorandum Circular No. 69-2016 dated July 1, 2016. Is the suspension good news?

Under this suspended RMO, the Bureau of Internal Revenue (BIR) issued procedures for claiming tax treaty benefits for dividend, interest and royalty income of nonresident income earners. 

Interestingly, the RMO also covers the application of the 15% preferential tax rate on intercorporate dividends paid to non-resident foreign corporations (NRFC) under Section 28(B)(5)(b) of the Tax Code, or the “tax sparing rule.” Pursuant to this provision, a lower 15% FWT rate will be imposed on dividends received by an NRFC if the country in which the NRFC is domiciled allows a tax credit against the tax due from the NRFC representing taxes deemed to have been paid in the Philippines equivalent to 15%.

Under the suspended RMO, the tax sparing rule shall apply to an NRFC which is a resident or is domiciled in a country which: (1) has no effective tax treaty with the Philippines; (2) has a worldwide system of taxation; and (3) allows a tax credit against the tax due from the NRFC dividend taxes deemed to have been paid in the Philippines equivalent to 15%.

In its previous rulings, the BIR ruled that “the only condition for the application of the tax sparing credit is that the country-domicile of the recipient corporation allows a credit against the tax due from non-resident foreign corporations.” It appears, however, that these new requirements are more rigid which may result in the denial of the taxpayer’s benefits. 

First, based on the same RMO, in order for the tax sparing rule to apply, the Philippines must not have a tax treaty with the country of residence of the NRFC. It is worthy to note in some tax treaties, an NRFC must hold a minimum percentage in a domestic corporation before a preferential tax rate would apply (e.g., NRFC from Singapore must hold at least 15% minimum stockholdings in a Philippine company in order to apply the 15% preferential tax rate. Otherwise, 25% FWT will apply). In other treaties, the preferential tax rate is higher than the 15% rate under the tax sparing rule (e.g., the Philippines-US tax treaty provides for 20% and 25% FWT on dividends). Thus, there are instances where the preferential tax rate under the tax sparing rule is more beneficial to the NRFC than those provided under the treaty. This does not actually result in a conflict since the tax treaties provide for the maximum rate that a treaty country can impose. It does not provide a definite rate. 

Applying the RMO, the presence of a tax treaty removes the NRFC’s benefit under the tax sparing rule, even if the latter is more beneficial than the maximum FWT rate under the treaty? Does the BIR have the authority to remove that benefit from a taxpayer even if it is clearly provided under the Tax Code? Understandably, a taxpayer cannot enjoy both benefits simultaneously, but can our tax authorities choose which benefit is applicable to a taxpayer, especially if it is detrimental to the taxpayer?

Secondly, the RMO requires that the country of residence/domicile of the NRFC must have a “worldwide system of taxation.” It does not provide specific guidance on what this means. 

Thirdly, the RMO retained the deemed tax paid credit under the Tax Code. In this regard, the RMO requires the submission of a consularized copy of the law of the country of the NRFC which expressly allows the said credit is required to be submitted in the application for tax sparing rule. If the country does not subject the dividends to tax, does this mean that the dividends will then be subject to 30% FWT? If so, this would be contrary to the Supreme Court case which confirmed the 15% FWT rate on dividends also applies to an NRFC where the country of residence does not impose any tax on the dividends. 

Finally, pursuant to the suspended RMO, it seems that the filing of an application for a tax sparing ruling is required to avail of the benefits. The RMO is, however, silent if whether the application should be made before the availment of the benefits (as a pre-requisite) or after the availment (merely serving as a confirmation). This begs another question, would a ruling be required (whether confirmatory or not) to avail of the preferential tax rate even if there’s no such requirement under the Tax Code? Would it not be a void requirement as beyond the authority of the BIR?

It is good thing that the said RMO was suspended by the new BIR commissioner. Maybe the foregoing issues were also considered by the BIR in suspending the effectivity of the RMO and retaining the suspension to date. Our country needs foreign investments. In order to entice foreign investors, our taxes should be competitive with those of other countries. One of the means provided to encourage foreign investments is the tax sparing rule. 

It is worthy to note that the BIR has a draft RMO on the new procedures for the availment of tax treaty relief on dividends, royalties and interest. However, this does not cover the tax sparing rule. Currently (and with the suspension of this particular RMO), there is no BIR issuance that tackles the tax sparing rule. It may help if the BIR would issue a regulation specifically setting guidelines to remove any uncertainties. However, in doing so, the BIR should also consider that one of the purposes of this provision is to attract foreign investors to the Philippines, and not to discourage them with unnecessary and complicated requirements.

So, is the suspension good news? 

The views or opinions in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

Realyn M. Postrado-dela Cruz is an Assistant Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. 

realyn.m.postrado@ph.pwc.com

Bloomberry wins SC tax case vs BIR

The Supreme Court (SC) has granted the certiorari petition of Bloomberry Resorts & Hotels, Inc. (BRHI) against the imposition of corporate income tax by the Bureau of Internal Revenue (BIR) on BRHI as a licensed casino operator of the Philippine Amusement and Gaming Corporation (PAGCOR).

In a disclosure to the Philippine Stock Exchange, parent company Bloomberry Resorts Corporation, the Supreme Court ordered the BIR to cease and desist from imposing corporate income tax on income from gaming operations of casinos duly licensed by the PAGCOR.

Bloomberry, the casino operator in Solaire Resort & Casino filed the petition in 2014 to nullify the provision of Revenue Memorandum Circular (RMC) No. 33-1013 issued by then BIR Commissioner Kim Henares in 2013 which imposed corporate income tax on casinos.

“This Supreme Court decision will allow PAGCOR and BRHI as an integrated casino resort to revert to the original license fee structure of 15 percent and 25 percent license fee (inclusive of the 5 percent franchise tax) for high rollers/junket and mass gaming respectively,” said Bloomberry.

The Supreme Court affirmed Bloomberry’s argument that as contracting party of PAGCOR, it was subject only to the 5 percent franchise tax on its gross gaming revenue, in lieu of all taxes, as provided under Section 13(2) of Presidential Decree No. 1869 (the PAGCOR Charter).

The Court cited its en banc decision in PAGCOR v. The Bureau of Internal Revenue, GR No. 215427, dated December 10, 2014.

source:  Manila Bulletin

Tax hikes to stoke inflation -- ING

PROPOSED INCREASES in levies on fuel and other basic goods under the Finance department’s tax reform plan could drive up commodity prices by as much as a percentage point, an economist of ING Bank N.V. Manila said yesterday.

Basing his estimates on the first package of proposed tax reforms laid out by the Department of Finance (DoF) last week, ING Bank senior economist Jose Mario I. Cuyegkeng said plans to remove several exemptions from the 12% value-added tax (VAT) and raise the excise tax imposed on fuel products may lead to a faster inflation rate by 2017.

“We estimate that the full impact of the fiscally induced price pressures from higher oil product excise taxes, expansion of VAT’s scope and other taxes would be 0.8 to 1 percentage point increase in inflation rate,” Mr. Cuyegkeng said in a market commentary e-mailed to reporters yesterday.

The package consists of restructuring the personal income tax system, expanding the VAT base by reducing exemptions, increasing excise taxes on petroleum products, and streamlining the excise tax on cars except for buses, trucks, cargo vans, jeeps, jeepney substitutes and special purpose vehicles. Initial DoF estimates peg revenue to be foregone from lower personal income taxes at P180 billion, to be offset by increased collections from the bill’s three other components.

Under a six-bracket tax schedule for 2018, as proposed by the DoF, workers earning up to P250,000 yearly will be exempt from paying taxes. Those earning more than P250,000 but not over P400,000 will be taxed 20% of the excess over P250,000; those earning more than P400,000 but not over P800,000 will pay P30,000 tax plus 25% of the excess over P400,000. Those earning more than P800,000 but not over P2 million will be taxed P130,000 plus 30% of the excess over P800,000; those earning more than P2 million but not over P5 million will pay P490,000 plus 32% of the excess over P2 million. Those earning more than P5 million -- the highest bracket -- will be taxed P1.45 million plus 35% of the excess over P5 million.

The levels were calibrated to make the system more “progressive” and “fair,” Finance Secretary Carlos G. Dominguez III had said earlier.

“We may see the inflation impact by the second or third quarter of next year if both houses of Congress approve the tax reform package in the first quarter or early second quarter,” ING’s Mr. Cuyegkeng added.

The Bangko Sentral ng Pilipinas (BSP) said it also expects higher oil levies to prod inflation, flagging it as an upside risk during its Sept. 22 policy meeting. At the same time, the BSP said it is unlikely that the resulting annual average would top the central bank’s 2-4% target band despite reform’s potential impact on pump prices and transport fares.

BSP Deputy Governor Diwa C. Guinigundo said the BSP expects inflation to average 1.7% this year before moving within target to 2.9% by 2017, which assumes that higher oil taxes will be in place.

Tax cuts for personal income earners and companies were promised by President Rodrigo R. Duterte during his first State of the Nation Address last July 25.

The House of Representatives received the DoF’s first set of tax reform proposals on Sept. 27, but has yet to start committee discussions on the bill as the chamber is currently focused on approving the P3.35-trillion national budget proposed for 2017.

Quirino Rep. Dakila Carlo E. Cua, chairman of the House Committee on Ways and Means, had said that the planned tax system overhaul may be passed as early as yearend.

However, House Speaker Pantaleon D. Alvarez said he has ordered the Ways and Means committee to prepare a “counterproposal” to the Executive proposal, as he is not keen on introducing new duties.

The first batch of reforms is expected to be followed by at least three other packages that similarly seek to reduce some taxes and cover revenues to be foregone by other revenue-generating measures.

The plan to trim corporate income taxes to 25% from 30% will be offset by streamlining tax incentives granted to companies. Lower estate and donor’s taxes will be compensated by increased property valuation rates to raise more funds for local governments.

Taxes on capital income will also be “harmonized” at 10%, which will cover interest earning on deposits, dividends, equity, and fixed income regardless of currency, maturity, and type of investment.

A set of additional luxury taxes -- entailing higher levies on fancy cars, jewelry, fatty food, and income from lotto and casino winnings -- may also be considered should there be a need to “augment” tax collections, Mr. Dominguez told lawmakers.

If passed, the reforms are estimated to result in a cumulative net revenue gain of P368.1 billion by 2019, with P566.4 billion in additional collections making up for P198.3-billion foregone revenues.

‘Issue-based’ VAT audits are coming

Assessment and collection of taxes -- these are the two chief functions of the Bureau of Internal Revenue (BIR), which is tasked to interpret and implement the provisions of the National Internal Revenue Code of 1997, as amended. To meet the objective, the Tax Code grants broad powers to the Commissioner of Internal Revenue which includes the power to authorize the examination of any taxpayer and the assessment of the correct amount of tax through the examination of any book, paper, record, or other data which may be relevant or material to such inquiry -- commonly known as tax audits.

Recently, the BIR lifted the suspension of tax audits pursuant to Revenue Memorandum Circular No. 91-2016. In the same direction, pursuant to Revenue Memorandum Order (RMO) No. 59-2016, the BIR introduced the “issue-based” approach of audit under the enhanced Value-Added Tax (VAT) Audit Program (VAP) which aims to focus on the analysis of specific identified risks, to increase collections, and to enhance voluntary compliance by focusing on quality audit of VAT returns.

As compared to its predecessor, the enhanced audit program revised the selection criteria (mandatory and priority) of taxpayers under the following cases:

Mandatory Case: 

1. Taxpayers with VAT returns reflecting erroneous input tax carry-over.

Priority Cases: 

1. Taxpayers whose VAT compliance is below the established industry benchmarks;

2. Taxpayers with zero-rated and/or exempt sales due to availment of tax incentives or exemptions; 

3. Taxpayers engaged in business where 80%, more or less, of their transactions are on a cash basis and whose purchases of goods and services do not generate substantial amount of input tax, such as restaurants, remittance/payment centers, etc.; 

4. Taxpayers with VATable transactions which were subjected to expanded withholding tax but with no VAT remittance;

5. Taxpayers who failed to remit/declare VAT due from purchase of services from non-resident aliens; 

6. Taxpayers who fail to declare gross sales/receipts subjected to VAT withholding on purchases of goods/services with waiver of privilege to claim input tax credit [creditable];

7. Taxpayers whose gross sales/receipts per income tax returns are greater than gross sales/receipts declared per VAT returns; and

8. Taxpayers filing percentage tax returns whose gross sales/receipts exceed the VAT threshold.

As noted above, the VAP prioritizes the taxpayers whose VAT compliance is below the established industry benchmarks. One may recall that the BIR has adopted the “benchmarking method” which establishes pre-determined standards or criteria to measure taxpayers’ level of compliance on a per industry basis. This audit method was introduced by the BIR as early as 2006 and was recently reiterated in the 2015 BIR Audit Program for the regular tax audits. While we recognize that this measure will assist the BIR in its objective of setting an industry standard for taxpayer performance, the BIR should exercise caution in light of unfavorable taxpayer experience relating to arbitrary classification through the application of a one-size fits all standard of audit for taxpayers’ in the same industry. The BIR should remember that classes of taxpayers within an industry group exist because of substantial distinctions (e.g., a large manufacturing company vs. a small-medium manufacturing company). Hence, a benchmark for a particular class of taxpayer is not necessarily applicable to a different class of taxpayer within the same industry.

In line with this, the RO assigned shall perform audit analysis and prepare an Audit Plan for each case to determine the scope of the audit and to ensure that the audit activity is properly planned to address the identified risks. The challenge now is how to apply the safeguards to ensure quality audit. 

As regards the revised procedures, another welcome development is the return of the Notice of Informal Conference (NIC) stage in the VAP. Under the reporting process, the taxpayer shall be given the opportunity to present its explanations and the related documents. Under the current rules in the conduct of regular audit, the issuance of Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN) will be in accordance with existing revenue issuances excluding the NIC stage. With the proper enforcement of this procedure, taxpayers are given more time to evaluate BIR’s findings. 

Also, in case there are deficiency VAT liabilities as result of the audit, any deficiency taxes agreed to be paid by the taxpayer, should have, at the very least, duly issued Preliminary Assessment Notice. Hence, taxpayers are encouraged to undergo the due process requirement in the issuance of a deficiency tax assessment and take advantage of all the remedies available to all taxpayers.

Moreover, it is interesting to note that Revenue Officers (RO) are given within sixty (60) and ninety (90) days covering one (1) and two (2) quarters, respectively, to finish their cases and submit reports of investigation from the date of issuance of electronic letters of authority. This is a welcome development since this will not somehow prolong the agony of the taxpayer under audit (at least a taxpayer is aware that its case will not take forever). But the question is whether or not the 60 or 90 day period will suffice to produce quality audits considering the existing workload of ROs. Or will it only bring additional burden to the already clogged case dockets of the BIR? 

It is clear that the objective of the VAP is to increase collections and enhance taxpayers’ voluntary compliance by focusing on specific and identified risks in the VAT returns. In this light, while we appreciate the BIR’s efforts to ensure more transparent rules on tax audits, we believe that the RMO can better serve its purpose by providing clearer information on how the pre-determined standards or criteria are formulated; consider taxpayers whose VAT compliance is below the established industry benchmarks compliant as long as the difference or decrease in VAT payments are justified; and to consider evaluating further the timeline within which the ROs can finish their cases and submit reports to the advantage of both stakeholders.

After all, the BIR’s operational procedures should be convenient, just and effective, to raise the level of voluntary compliance, thereby allowing the government to raise much-needed revenue for nation-building.

Daryl Matthew A. Sales is a tax manager of the Tax Advisory and Compliance Division of Punongbayan & Araullo.

Gov't bats for lower flat tax rate for deposits, securities

MANILA, Philippines — More depositors and investors could be encouraged to park their money with the banks or let them grow in the financial system once a planned flat tax rate of 10 percent becomes a reality.

 

The proposal is part of the government's comprehensive tax reform program, composed of four packages which will be filed one by one beginning later this month.

 

"We propose to harmonize all capital income taxes regardless of currency, maturity and type towards 10 percent," Finance Secretary Carlos Dominguez was quoted in a statement.

 

"This way, the poor pay less on the interest income and the rich pay more," he told the House ways and means committee last Tuesday.

 

Capital income taxes pertain to final levies charged on bank deposit earnings as well as interest income from investments in bonds.

 

Under the present law, peso deposits are charged differently depending on their maturities, with those parked for less than three years being slapped a rate of 20 percent.

 

Money staying put for three to less than four years are taxed 12 percent, four to less than five years with 5 percent, while those for longer periods are tax-free.

 

Foreign currency deposits, meanwhile, have a fixed 7.5-percent rate, while interest from investing in bonds are levied 20 percent.

 

Dominguez said retail depositors with a small amount of money do not even feel the benefits of saving in the bank.

 

"Small depositors are burdened with high tax rates because they save less and cannot keep their money in banks for a long time, while rich depositors, who park their money in banks because they do not have an immediate need for it, are not taxed," he said.

 

"Is that fair?" he asked.

 

A total of 51.86 trillion accounts had deposits worth P9.41 trillion as of the first quarter, central bank data showed. Of that, more than 90 percent were savings accounts.

 

Of the 46.91 trillion savings accounts, 32.14 million contain P5,000 and below. 

 

Separate data showed the government earned P23.31 billion from taxes on deposits and state securities as of June. They accounted for just nearly 3 percent of the total.

 

"That is very positive to the ordinary citizen and encourage savings," central bank deputy governor Nestor Espenilla Jr. said in a text message.

 

"More savings expands the stable funding base of the banking system that supports more loans and investments," he added.

source: Philippine Star

Duterte tax plan ‘right way to go’ -- IMF

THE INTERNATIONAL Monetary Fund (IMF) backs the current tax reform proposal of the Finance department, noting the host of “well-structured” packages would help boost revenue collection even as income taxes are bound to go down.

IMF Country Representative Shanaka Jayanath Peiris said the set of changes drafted by the Department of Finance (DoF) is on the right track to a more progressive taxation system that will also raise additional funds to support a hike in public investments.

“We are very supportive of the tax reform. All aspects are very much in line with what we have thought of for a long time,” Mr. Peiris said in an interview on the sidelines of the AVCJ Private Equity & Venture Forum in Makati City yesterday.

Finance Secretary Carlos G. Dominguez III on Tuesday presented a rough outline of the administration’s proposed tax reforms before the House of Representatives, which if passed will cumulatively yield a net revenue gain of P368.1 billion by 2019.

The plan is split into five packages, the first of which covers the planned reduction in income tax rates to be offset by removing exemptions from value-added tax, higher fuel excise taxes and a similar levy on sweetened products.

The Cabinet official said the proposed measures are designed to make the rich pay more and to give the poor some relief.

Speaking to reporters on the sidelines of an oath-taking ceremony in Manila, Mr. Dominguez said the income tax rate for taxpayers earning P3-5 million will remain at 32%, the current tax rate for most income brackets. Those making more than P5 million annually will be levied a 35% rate. For employees earning below P3 million, the tax rate will decrease annually until it reaches the 25% threshold. All-in-all, the new personal income tax scheme will slash the number of tax brackets to five or six from the current seven to prevent “income creeping.”

Mr. Dominguez said higher taxes for the richer Filipinos should not be a big concern -- even if they move investments abroad -- as there are less than a thousand wage earners earning more than P5 million a year.

“And [the cost of raising tax rates] from 32% to 35%, it’s only P60,000,” Mr. Dominguez explained, adding that “if somebody would spend so much money to set up a company in Hong Kong to divert the money, he would have done it already.”

Income tax rates in the Philippines are deemed among the highest in Southeast Asia, making it less attractive for foreign firms to invest here.

The personal income tax reform package will be submitted to Congress before the end of the month, to be followed by the corporate income tax package, property tax package and capital income tax package, respectively.

“If Congress has the appetite, we can accelerate it,” Mr. Dominguez said of the timetable for submission of the tax reform packages.

The plan to trim the corporate income tax rate to 25% from 30% will be offset by streamlining tax incentives granted to companies.

Lower estate and donor’s taxes will be made up for by increased property valuation rates to raise more funds for local governments, Mr. Dominguez added.

A set of additional luxury taxes -- which include imposing higher duties on fancy cars and yachts, duties on fatty food, and income taxes from lotto and casino winnings -- may be considered in the future should there be a need to “augment” tax collections, Mr. Dominguez said, noting this package raise P129.4 billion more.

IMF’s Mr. Peiris said the DoF’s decision to present various tax adjustments by cluster is a good design that would ensure that changes would be balanced, as any revenue-eroding proposal would be matched by new or additional sources of taxes.

“The initial view is it seems like the tax reform packages have been well-structured and sequenced exactly to avoid some of those pitfalls,” the IMF official said.

“We think the tax reform packages have been structured and it’s the right way to go… These packages should be passed together to ensure you have a revenue-enhancing and inclusive growth package.”

Plans to reduce personal and corporate income taxes are positive for overall growth, the IMF said in its annual health check on the Philippine economy last July.

Mr. Peiris said the IMF is poised to revise upward its growth forecast for the Philippine economy -- currently at 6% -- following a faster-than-expected 6.9% expansion last semester. He noted that increased public spending would be required to sustain robust economic growth, hence the need for bigger revenues.

“The key thing for the Philippines is the revenue ratio is relatively low, and public investment -- although increasing -- is still low,” the IMF official added.

“Even if you raise the deficit from 2% to 3% [of GDP], it’s still not enough to achieve the investment targets. Very clearly, we need revenue reform to put money into public investment.”

Tax effort stood at 13.7% of GDP last year, far short of Southeast Asia’s 15% average.

Total collections hit P2.109 trillion in 2015, up by a tenth from the previous year but 7% short of target, according to Treasury data.

The government plans to raise as much as P2.257 trillion this year, with more than half -- some P1.271 trillion -- raised in the first seven months.

Economic managers of President Rodrigo R. Duterte have raised the deficit cap to about 2.7% of GDP for this year and to 3% annually from 2017 to 2022, as the government embarks on more “audacious” spending to plug the country’s infrastructure gap and infuse more funds for social services.

In particular, Budget Secretary Benjamin E. Diokno expects infrastructure spending to reach P7 trillion for the next five years. -- with Lucia Edna P. de Guzman

source:  Businessworld

Revenue officials assure reforms to make tax regime equitable, yield net collection

STATE revenue officials yesterday presented to lawmakers the general outline of a new tax regime that will ease the burden on wage earners and yet yield a net collection that will support plans for bigger government spending on infrastructure and social services.

In a briefing to the Ways and Means committee of the House of Representatives, which by law is where tax legislation emanates, Finance Secretary Carlos G. Dominguez III said: “We put the packages together so that there will be a balance between revenue-eroding measures and revenue-enhancing measures.”

Presentation materials showed the reforms will result in a total of P198.3-billion foregone revenues and overall gains of P566.4 billion to yield P368.1 billion in cumulative net collections.
The administration of President Rodrigo R. Duterte, who took office on June 30, last month submitted to Congress a P3.35-trillion national budget proposed for 2017 that is 11.6% more than the P3.002 trillion approved for this year. That plan will see public infrastructure spending increase 13.79% to P860.7 billion equivalent to 5.4% of gross domestic product (GDP) in 2017 from P756.4 billion, or 5.1% of GDP, this year. Tax revenues are targeted to grow 13.16% to P2.313 trillion in 2017 -- equivalent to 14.5% of GDP -- from this year’s programmed P2.044 trillion. Total state disbursements are programmed to increase 11.87% to P2.96 trillion in 2017 -- equivalent to 18.6% of GDP -- from P2.646 trillion this year. That will leave 2017 with a budget deficit of P478.1 billion, equivalent to 3% of GDP, from this year’s programmed P388.9 billion that is equivalent to 2.7% of GDP.

The summary presented to lawmakers yesterday bared five packages, namely:

• A proposal to cut personal income tax rate “to 25% over time, except for the highest income earners” from 32% currently, and other related reforms, will result in P159 billion in foregone collections that will be offset by P359.7 billion in gains from removing certain value added tax exemptions (P163.4 billion), increasing the excise tax on oil products and then pegging the rate to inflation from then on (P178.2 billion) as well as imposing an excise tax on sweetened drinks and pegging the rate to inflation (P18.1 billion) besides measures aimed at improving tax administration, to yield P200.7 billion in net collections;

• A reduction in corporate income tax (CIT) rate “to 25% over time” from 30% currently will result in P34.8-billion foregone revenues that will be partially offset by a projected P33.8-billion gain by streamlining tax incentives to make sure these benefit only deserving businesses and then phasing out these perks, as well as replacing the 5% gross income tax rate with a reduced CIT rate of 15%, to yield P1 billion in projected net foregone revenues;

• A reduction in the rates for estate and donor taxes and transaction charges on land ownership transfers (documentary stamp tax, transfer tax and registration fees) that will cost P3.5-billion foregone revenues that will be offset by additional collections totaling P43.5 billion from rationalizing valuation of properties, increasing valuation closer to market prices and adjusting valuation every three years, to yield P40-billion net collections;

• A reduction in the rate of tax on interest income earned on peso deposits and investments to 10% from 20% currently, as well as harmonizing capital income tax rates for dollar deposits and investments, dividends, equity and fixed income placements “towards 10%” and raising the tax rate for stocks traded on the Philippine Stock Exchange to 1% of gross selling price from 0.5% currently that will all result in a cumulative P1-billion foregone revenues;

• New taxes on luxury items like cars, yachts and jewelry (P7.7 billion), fatty foods (P20 billion), lottery and casino (P20 billion) as well as a carbon tax (P20 billion), adjusted excise taxes on tobacco and alcohol products (P58.2 billion) and a new mining tax regime (P3.5 billion) are all expected to bring in a total of P129.4 billion. -- L. E. P. de Guzman

source:  Businessworld