Gov’t sets 2015 tax targets

EVEN with its key revenue collectors falling short of targets, the government has raised its tax target next year to support a bigger spending plan, according to data released on Friday by the Budget department.

The government aims to collect P2.194 trillion in tax revenues next year to help finance the P2.606-trillion national budget it proposed for 2015, with the Bureau of Internal Revenue (BIR) taking on more than three-fourths of that target.

The tax revenue goal for next year is 16.73% more than the 1.88 trillion targeted for 2014, while the national budget proposed for 2015 is 15% more than 2014’s P2.264-trillion expenditure plan.

Tax revenue targets have been set at P2.612 trillion in 2016 and P2.956 trillion in 2017.

BIR will have a P1.721-trillion collection target for next year that is 18.16% more than its P1.456-trillion program in 2014.

The bureau collected P763.148 billion as of July, up 9.99% from the same seven months last year but still short of the P831.063-billion goal for the period.

Bulk of BIR’s target for next year consists of:

• P1.032-trillion taxes on net income and profits (individual and corporate income taxes, capital gains tax, as well as taxes on Treasury Bills, commercial papers and bank deposits);

• P684.708-billion taxes on domestic goods and services;

• P151.266-billion excise tax on alcohol and tobacco products, fuel and oils, and mining;

• P78.433-billion taxes on services; and

• P75.657-billion documentary stamp tax.

The Bureau of Customs (BoC) -- whose collection surged 19.5% annually to P173.401 billion last semester but still missed a P198.949-billion goal for that period -- will be entrusted with a fifth of next year’s tax revenue goal at P456.468 billion, with value added tax on imports accounting for bulk of the bureau’s target at P347.360 billion. BoC’s 2015 target is 11.84% than its P408.096-billion goal this year.

Another major contributor to tax revenues next year is the Department of Transportation and Communications, which will collect P13.690 billion in Motor Vehicle Tax, up 12.57% from P12.161 billion this year.

Fiscal incentives rationalization to add P30B in PH annual revenue

After 16 years, the departments of Finance and Trade and Industry have reached an agreement and will submit the revised version of the bill this week

MANILA, Philippines – The passage of the fiscal incentives rationalization bill could generate an additional revenue of about P30 billion ($686.68 million*) annually, the Department of Finance (DOF) said Tuesday, August 19.

Finance Secretary Cesar Purisima said during the Development Budget Coordination Committee briefing on the proposed 2015 budget that his department would soon submit to Congress the revised version of the proposal to rationalize fiscal incentives.

"We've finally reached an agreement with the Department of Trade and Industry (DTI). We are submitting this week the revised version of the bill," Purisima said.

The finance chief said that the passage of the measure could generate up to 2% of gross domestic product (GDP) over a period of time, or around 0.2% of GDP every year.

During the budget briefing, Senator Franklin Drilon also mentioned the need to review the income tax bracket structure in the country.

"While we look at the rationalization of fiscal incentives, we can also look at the tax bracket structure. We haven’t reviewed this since 1997," Drilon said.

The Aquino administration wants fiscal incentives streamlined because these distort the tax structure of the Philippine economy and take away billions of pesos from government every year that could be used to improve the country’s fiscal position and social services.

In his first SONA in 2010, Aquino announced a package of economic reforms, including the rationalization of incentives.

“We will re-evaluate fiscal incentives given in the past. Now that we are tightening our purse strings, we need to identify those incentives that will remain and those that need to be done away with,” he stressed then.

He made similar statements in his 2011, 2012 and 2013 SONAs. In the last, he reiterated the need for such rationalization so “incentives we provide to businesses become even clearer and more accountable.”

Under Executive Order 226 or the Omnibus Investments Code of 1987 – one of the major laws governing fiscal incentives in the Philippines – incentives that can be granted to identified Board of Investments (BOI)-registered enterprises include tax exemptions, tax credits, and deductions from taxable income.

Investors have normally been given corporate income tax holidays for a period of up to 8 years. The DOF is looking at discontinuing such tax breaks for sectors like shipbuilding, iron and steel, and vehicle manufacturing. It said it would rather support investments in exporting industries, micro, small and medium enterprises, and research and development.

However, the measure is still pending before Congress. There are 4 bills with the House Committee on Ways and Means, all covering the rationalization, grant, and administration of fiscal incentives for investment growth.

Three fiscal incentives bills are also pending before the Senate Committee on Ways and Means.

Committee chairman Sonny Angara tweeted Tuesday that the debate between DOF and DTI over fiscal incentives rationalization has been going on for 16 years. The DOF is looking into revenue, while DTI is focusing on jobs and investments. (READ: Fiscal incentives bill: Is it really priority?)

Review tax bracket system

During the hearing, Drilon said that the Senate could also look into possible income tax cuts.

Purisima, on the other hand, said that he was open to reviewing the tax bracket system.

The Tax Management Association of the Philippines (TMAP) is pushing for the adjustment of income tax brackets and the reduction of income tax rates in the country.

The association of tax consultants and corporate tax practitioners filed with the Ways and Means Committees of both houses of Congress its position on the various proposed income tax bills.

TMAP said that it supports the adjustment of income tax brackets to consider the current Consumer Price Index.

"Such adjustment will increase disposable income, improve the living standards of our countrymen, and fuel the economy," TMAP said.

The organization also supports the periodic automatic indexation of the income brackets by the DOF based on the criteria set by Congress. 

TMAP recommends that the income tax brackets should provide for a 0% tax rate at the level of those defined as “marginal income earners,” which may also be aligned with the level of minimum wage earners.

Currently, even a P10,000 ($229.04) annual taxable income is taxed at 5%.

The World Bank called for the Philippine government to raise tax revenues by broadening the base, and making the tax system simpler and more efficient and equitable, while lowering certain tax rates. (READ: World Bank: Broaden base, simplify taxes to boost revenues) – Rappler.com

*($1 = P43.69)

Inflation’s political dimension

LOURDES Torres, 57, sells cheap hunger busters a stone’s throw away from the Bangko Sentral ng Pilipinas (BSP). And come 2016, none of President Benigno S.C. Aquino III’s men will get her vote.

“Didn’t it get worse? I think it’s the worst it’s ever been,” she said about the economy in Filipino, taking exception to rising consumer prices. “I’m a mother, too, so I can feel the impact everyday.”

“I think the government should do something about it,” Ms. Torres said, adding that the government has already lost her vote.

It is easy to imagine Ms. Torres as one of the respondents in the latest Social Weather Stations (SWS) survey that saw national government satisfaction ratings falling to a fresh all-time low for this administration.

Her thumbs-down could easily have counted toward the “poor” mark the administration received for “fighting inflation” -- its third worst-rated indicator, better only than the ratings on its perceived performance in “resolving the Maguindanao massacre with justice” and “ensuring oil firms don’t take advantage of oil prices.”

The nationwide survey, conducted on 1,200 adults from June 27 to 30, showed that public satisfaction with the general performance of the Aquino government fell to a fresh all-time low last quarter, with declines recorded across all indicators.

The government’s mark for fighting inflation fell to a -18 “poor” rating in the latest survey from a +4 “neutral” rating from an earlier survey in March. The SWS classifies net satisfaction ratings of +70 and above as “excellent”; +50 to +69, “very good”; +30 to +49, “good”; +10 to +29, “moderate”; +9 to -9, “neutral”; -10 to -29, “poor”; -30 to -49, “bad”; -50 to -69, “very bad”; and -70 and below, “execrable.”

For J. Prospero E. de Vera III, University of the Philippines Vice President for Public Affairs and public administration professor, the correlation between rising prices and the political prospects of the Aquino government is all too obvious.

“Of course there is a correlation, because in the survey, it also shows that if you ask the electorate what is the most prevalent or number one problem in the country, it is the high cost of living,” Mr. de Vera said in a phone interview.

“[The respondents] talk about inflation because it’s an issue that they face on a day-to-day basis.”

The government has been seeing elevated inflation in recent months -- cited by the BSP as reason for pursuing a tighter monetary policy, including a hike in interest rates it previously had not touched for two years. Rising food and utility prices stoked inflation to 4.9% in July, the fastest pace recorded since October 2011.

The country’s economic managers blamed the bad weather -- with the economy still reeling from the impact of super-typhoon Yolanda (international name Haiyan) -- for the inflation headache.

MANDATE
Sought for comment on public satisfaction with the way the Aquino government is dealing with inflation, BSP Governor Amando M. Tetangco, Jr. explained higher commodity prices “have been attributed mainly to weather-related supply chain disruptions.”

“The government is working to address these concerns already.”

BSP Deputy Governor Diwa C. Guinigundo echoed this view.

“Philippine inflation is now largely driven by supply bottlenecks particularly in food products, so various government agencies like the DA (Department of Agriculture), NFA (National Food Authority), as well as DTI (Department of Trade and Industry) have addressed this issue through more support to agricultural sector, as well as timely importation of food commodities like rice,” he said.

Mr. Tetangco asserted that the BSP will continue to deliver on its price stability mandate.

“As for the BSP, we are also mindful of price increases in specific commodities, especially as they contribute to overall market inflation expectations, so that the latter do not lead to second-round effects,” he said.

“We will adjust policy settings as needed to protect the national government inflation target over the policy horizon.”

‘POPULIST MEASURES’
As rising prices remain a fact on the ground, however, the question that arises is whether the government will turn to populist measures to combat one of the most stubborn drags to its popularity -- inflation.

“The basic instinct of any government is to think of ways of keeping power so when faced with bad PR, ‘populist measures’... will be the natural reflex,” Security Bank Corp. economist Patrick M. Ella said in an e-mail.

History is rife with cases of politics influencing fiscal and monetary policy making. In the US, politicians had been known to zero in on inflation in a bid to win the population’s approval over an issue close to their stomachs. One notable example is when US President Gerald Ford came up with a grassroots-focused campaign called “Whip Inflation Now” (WIN).

Mr. Ella noted that “President Ford and his predecessor, President (Richard M.) Nixon, lived in inflationary times, so rising prices was one of the main political and economic issues of the day.”

“The record of history is clear: politicians tend to favor or shower electorate with ‘gifts’ like price controls or subsidies or wage hikes when facing bad PR,” Mr. Ella said.

“Nixon did this, Marcos did this.”

HAPPY FOR A WHILE
Bank of the Philippine Islands economist Nicholas Antonio T. Mapa said, however, that such measures rarely result in long-term benefits.

“Short-term fixes to win back popularity rarely result in long-term gains,” Mr. Mapa said separately via e-mail.

“We hope that this administration would refrain from doing so as this would undermine the growth we’ve seen so far.”

Mr. Mapa noted that the government had in fact even contributed to the elevated inflation outlook, as it pursued one ostensibly populist objective.

“Inflation is spiking in large part because of a populist measure that the administration stubbornly chased and this is the issue of rice self-sufficiency,” Mr. Mapa said.

“I understand that it is wildly popular to chase after this goal given that it’s our staple food. However, from an economist point of view, it would not be an efficient use of our scarce resources...” he explained.

“Now, the government has decided to abandon rice self-sufficiency altogether,” Mr. Mapa noted.

“Had we simply gone away from the populist measure of chasing rice self-sufficiency and imported enough rice -- commensurate to the true needs of the country -- then we would not be saddled with this sort of price acceleration,” he asserted.

“In short, this shows how populist measures can make a couple of people happy, but only for a while.”

CUT TAXES
Mr. Ella noted, however, that there are instances when populist measures can actually benefit the economy.

“Some populist measures like price controls or hiking minimum wage or increasing oil subsidies... never work,” he said.

“But if it’s something sensible like lowering tax rates, which spurs the supply side of the economy, this has a long track record of working and across history and countries.”

Metropolitan Bank & Trust Co. Research Head Ildemarc Bautista agreed.

“Revising the tax scheme on personal income tax to afford some tax relief to lower income groups appears populist,” Mr. Bautista cited as an example.

“However, the argument for restructuring is based on solid economic arguments that the current tax rates are in fact regressive and penalize the lower income groups because the tax brackets are not adjusted for inflation.”

Several bills seeking to reduce individual income tax rates are pending with Congress.

“Either the brackets ought to be regularly adjusted upwards or the tax rates be revised downwards or do something in between to factor in inflation,” Mr. Bautista suggested.

“These will in turn benefit the lower income groups and would be thus labeled as populist, but the logic for the revision remains sound.”

This goes to show, Mr. Bautista said, that “there are some populist measures that are in fact grounded in good economic theory, so it is not necessarily true that there is a dichotomy between populist measures and good economics.”

Small-time vendor Ms. Torres can only agree. -- with reports from Daryll Edisonn D. Saclag and Mikhail Franz E. Flores

source:  Businessworld

Essentially inseparable

AS KIDS, we may have persuaded our parents to hear us out before they lay down any punishments for any mischief we may have done. Though we, as children, may not yet know the term “due process,” even then, we already had the innate idea of the need to first be heard before judgment is rendered.

In our society, one may argue that due process is the essence of our justice system. In simple parlance, due process just means that a person must be informed of the claim against him and that he must be given the opportunity to be heard and to defend himself against such claim. This two-fold requirement of procedural due process must always go hand in hand; otherwise, the concept of due process is defeated.

Due process must be applied not only in judicial proceedings but also in administrative ones, though the application in the latter case is not as stringent as in the former. As often discussed by the Supreme Court (SC), due process in administrative proceedings is simply an opportunity to be heard or to explain one’s side, or an opportunity to seek reconsideration of an action or ruling.

DUE PROCESS IN TAX ASSESSMENT
The Tax Code and its implementing rules follow the twin requirement of due process. The taxpayer must be informed in writing of the legal and factual basis of any assessment and must be allowed to dispute it. Absence of either condition shall render the assessment void.

DUE NOTICE
In tax assessments, due process requires that a taxpayer must actually receive the required tax assessment notices. Under existing tax rules, one mode of serving a tax assessment notice is through registered mail. Jurisprudence teaches us that a mailed letter is presumed to have been received by the addressee in the ordinary course of mail. However, this presumption may be refuted by a taxpayer’s direct denial, thus, shifting the burden to the Bureau of Internal Revenue (BIR) to prove that the notice of tax assessment was actually received by the taxpayer. How does one prove receipt of notice served through registered mail?

In one case where a taxpayer denied having received the tax assessment notice, the SC declared that, in proving the taxpayer’s receipt of notice, the BIR could have simply presented the registry receipt or the certification from the postmaster that it mailed the notice (CIR vs. Metro Star Superama, Inc., G. R. No. 185371 dated 8 December 2010). Having failed to do so made the entire assessment process void.

In a recent Court of Tax Appeals (CTA) case (Republic of the Philippines vs. Molinar, doing business under the name “Romac Marketing”, CTA OC No. 14 dated 6 June 2014), the taxpayer similarly claimed that the BIR failed to give him due notice of the tax assessment against him. However, the CTA found that there was due process after the BIR presented the registry receipts of the Letter Notice and Second Notice and the registry return receipts of the Amended Preliminary Assessment Notice (PAN) and the Formal Letter of Demand (FLD) and Final Assessment Notice (FAN), in addition to presenting revenue officers who prepared and mailed the notices.

As stated earlier, part of the due notice requirement is that the taxpayer must be informed in writing of the legal and factual basis on which he is being assessed, which would then allow the taxpayer to respond accordingly.

OPPORTUNITY TO BE HEARD
Aside from due notice, the taxpayer should be given the chance to say his piece, so to speak. As explained by the SC in administrative proceedings, “to be heard” does not only mean verbal arguments in court; one may also be heard through pleadings. Where the opportunity to be heard, either through oral arguments or pleadings, is accorded, there is no denial of procedural due process (Vivo v. PAGCOR, G.R. No. 187854 dated 12 November 2013). In other words, administrative proceedings do not require a trial-type proceeding to comply with due process.

In a tax assessment, the opportunity to be heard comes in the form of a written protest. Under existing regulations, a taxpayer has 15 days from receipt of a PAN to file a written response, and 30 days from receipt of a FAN to submit a written protest. The written protest must contain specific information as provided under the regulations; otherwise, it shall be considered void and without force and effect. For instance, the protest letter should state the facts, and the applicable law, rules and regulations, or jurisprudence on which the protest is based. In addition, it must also state whether the protest is a request for reconsideration or reinvestigation, and in the latter case, must specify the newly discovered or additional evidence that will be presented.

In sum, basic compliance with the due notice and hearing requirements in administrative proceedings constitute observance of the minimum and essentially inseparable requirements of due process.

As earlier mentioned, even kids recognize the notion of due process. Thus, the need for due process may be considered a basic and widely accepted notion. In case of a tax examination, due process is indispensable. It must be observed so that a taxpayer would know not only the claim against him but also be able to apply the remedies that are available to him; so that he can intelligibly prepare his defenses that may help him avoid any sanctions or penalties; and, so that such defenses may be presented before the BIR for proper consideration. If you’re in this kind of situation, wouldn’t you want to be told of the claim against you and have the chance to defend yourself?

Rachael U. Yap is a Senior Consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

rachael.u.yap@ph.pwc.com

source:  Businessworld

Tax goal topped 1st time this year

COLLECTIONS of the Bureau of Internal Revenue (BIR) exceeded the target for July, the Finance department yesterday said, even as year-to-date tally still fell short of the goal for that period.

BIR collections reached P119.94 billion in July, up 19.82% from the P100.098 billion collected in the same month last year. Collection likewise exceeded the bureau’s P119.883-billion target for the month by 0.05% or P58.52 million.

This brought year-to-date tally to P763.148 billion, up 9.99% from the same period last year but still short of the P831.063-billion target for the first seven months this year.

It was the first time the BIR breached its monthly goal since December 2013, when it raked in P96.63 billion, topping the P90.79-billion target for the month.

Asked what drove July’s tax haul to exceed the target, BIR Commissioner Kim S. Jacinto-Henares replied: “hard work.”

Collections from BIR operations totaled P115.45 billion, up 21.61% from July 2013 and exceeding last month’s goal by P2.06 billion or 1.81%. The target was likewise exceeded by the Large Taxpayers Service (LTS), which collected P77.54 billion or 25.05% higher than in July 2013. LTS topped its goal by P2.44 billion or 3.25%. Non-BIR operations -- involving taxes on government securities -- contributed P4.49 billion, 12.97% less than July 2013 collections and P2 billion or 30.8% short of the goal set for last month. Regional offices raked in P37.92 billion, up 15.12% from collections in July 2013 but short by P1.95 billion or 4.89% of its target.

BIR is mandated to collect P1.456 trillion this year. With the latest tally of P763.148 billion, it still needs to collect around P692.852 billion from August to December to meet its 2014 target. -- Mikhail Franz E. Flores

source:  Businessworld

BIR turns down investor community’s bid to rescind rule on disclosure of beneficial owners

The Bureau of Internal Revenue (BIR) today assured the investing community that it has nothing to fear from a rule requiring the identification of beneficial owners of taxable securities.

In a statement, Commissioner Kim Jacinto-Henares said only bank deposits and government securities are covered by the Bank Secrecy Law or Republic Act No. 1405.

Under Section 2 of RA 1405, deposits of whatever nature in banks in the Philippines and investments in government bonds are confidential in nature.

The same privilege however doesn’t hold for investments in shares of stock, corporate bonds, as well as purchases of foreign exchange and receivables.

“Investors have nothing to fear if they are tax compliant. Logic dictates that if you have a lot of money to invest, then you must have earned it and have paid the right taxes on your earning,” Henares said.

“Rest assured though that information in the hands of the BIR are confidential and cannot be disclosed without the approval of the President of the Philippines, under pain of imprisonment,” she added.

The BIR’s clarification comes on the heels of a statement issued by business groups, asking the bureau to rescind Revenue Regulation 1-2014, which requires disclosure of the identities of beneficial owners.

Signatories to the statement include the Philippine Stock Exchange, Philippine Chamber of Commerce and Industry, Bankers Association of the Philippines, Employers Confederation of the Philippines, Federation of Filipino-Chinese Chambers of Commerce & Industry Inc., Fund Managers Association of the Philippines, Investment Houses Association of the Philippines, Philippine Association of Securities Brokers and Dealers Inc. and Trust Officers Association of the Philippines.

The objecting groups, which represent both the buy and sell sides of investing, said affected parties weren’t consulted before the rule was imposed. They also scored the BIR’s lenience vis-a-vis foreign investors; a privilege that allegedly was not granted locals.

Furthermore, the business groups complained that compliance would be “virtually impossible” since securities issuers don’t have immediate access to the identities of the beneficial owners.

The groups also questioned the timing of the rule’s implementation, as it coincides with the payment of dividends, thus effectively taxing income stocks.

source:  AmCham

Tax consultants' organization bats for lower income tax rates, inflation-sensitive brackets

MANILA – The country’s organization of tax consultants and advisers is pushing for legislation that will index income tax brackets to inflation and reduce tax rates.

In a position paper filed with the Ways and Means committees of the House and the Senate, the Tax Management Association of the Philippines (TMAP) said it supports the periodic adjustment of income tax brackets by pegging them to inflation; a move that will “increase disposable income, the living standards of our countrymen and fuel the economy.”

According to TMAP, such an income tax system should provide a zero tax rate for marginal income earners. At present, those earning P10,000 a year are taxed at 5 percent even if their income is no higher than the minimum wage.

Also, TMAP proposed aligning the country’s tax rates with those of its Asean neighbors, where the top rate for individuals ranges from 20-30 percent.

"A comparison of the individual tax rates prevailing with Asean neighbors shows that the 32 percent tax on taxable income of P500,000 is the highest in the region. In the Philippines, income in excess of P500,000 is taxed at 32 percent while, in our Asean neighbors, the tax on income in excess of P500,000 is substantially lower," the group said.

Besides reducing the tax rates, TMAP also called for a simpler process of taxing individuals to encourage tax returns filing and thus broaden the tax base.

SOURCE:   InterAksyon