Income Tax Reform in the Philippines: The Story So Far

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The Philippines currently has the second highest personal and highest corporate income tax systems among the Association of the Southeast Asian Nations (ASEAN) economies.

At 32 percent for personal and 30 percent for corporate, even Finance Secretary Cesar Purisma agrees with some government officials and business groups that “it’s high time for a tax reform.”

A two-decade-old tax system

The country’s current tax rate system still follows the 1997 National Internal Revenue Code of the Philippines, wherein an employee earning P500,000 a year are subject to the same tax rate of 32% as his company’s CEO who earns P20 million a year.

Last 2014, at least 15 senators and House leaders backed measures to lower income taxes, promising to pass a measure by 2015 to lessen the burden of taxpayers. A reform in the country’s income tax rates is seen to boost the purchasing and saving power of ordinary workers.

According to Philippine Chamber of Commerce and Industries (PCCI) President, Alfredo M. Yao, lowering income tax rates will empower both individual tax payers and corporations to spend thereby creating more economic activities that are taxable.

In addition, based on a data by the Bangko Sentral ng Pilipinas, prices of goods and services have increased by 110 percent between 1997 and 2012 but the individual income tax brackets have remained unchanged since 1997, which clearly explains how things were very different almost two decades ago.

President Aquino not convinced

President Aquino has repeatedly voiced out his opposition to lowering income tax rates, fearing that lowering income taxes may result to inflated deficit since there will be reductions in the country’s revenue. With a bigger deficit, it may have a negative factor when credit rating agencies evaluate the country’s economic performance.

The Department of Finance and the Bureau of Internal Revenue said that it would agree to lower income tax rates as long as the value-added tax (VAT) is increased from 12 percent to 14 percent but the two agencies later backtracked and batted for a “status quo.”

In September 3, 2015, the Palace rejected a House bill by Senator Juan Edgardo Angara and Marikina Representative Romero Federico Quimbo, that seeks to lower income tax rates in the country, saying that it would lose at least P30 billion annually if it be implemented.

As of November 2015, there are currently 24 bills filed in Congress, pushing for a reform on the country’s outdated income tax systems. All of which are stuck at the House committee level.

2016 contenders talk tax

Vice Presidential candidate Senator Marcos Jr., Senator Miram Defensor-Santiago’s running mate, said “Our tax structure is simply outdated that even those in the middle class are now in the bracket of the rich, paying tax for the rich. It’s time we do something to correct the situation.”

Presidentiables Senator Defensor-Santiago, Senator Grace Poe, Former DILG secretary Mar Roxas, and Vice President Jejomar Binay are all in favor of income tax reform. Roxas stressed out that tackling the issue during this election season would only politicize the matter.

Another presidentiable, Mayor Rodiqo Duterte, said, “If you’re earning P24, 000 and below, no more income tax— the rest will be a gross tax on everything. Show your expenses, and there is a tax schedule. It’s been done in Singapore and Malaysia.”

Even the APEC summit that was recently held in the country has been sarcastically lauded by the Filipino working force because APEC’s expenditures came from their taxes that was supposedly for the welfare of every Filipino citizen.

Is there hope for an income tax reform?

We could just hope and pray that the next administration would push through with an income tax reform, since most of the presidentiables are in favor of amending the tax system.

What businesses can do for now is to properly file their taxes and do so in time. They could seek a trusted accounting services partner to help them with their accounting and tax needs.

Featured image by photosteve101





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