The incoming Duterte Administration appears to be all set to implement a comprehensive tax reform, which will be highlighted by a reduction in the income tax rate of both individual and corporate taxpayers.
The reform is long overdue as the income tax rate in the Philippines (which is 32% for those with taxable income of more than R500,000.00) is the highest in Southeast Asia. It is expected not only to ease the “burden” of Filipino taxpayers but also to make the Philippines more attractive to foreign investors.
Given the Duterte Administration’s determination to reduce the income tax rate, its focus is on the identification of additional sources of revenue given the expected lesser revenue from income tax.
While the obvious considerations include increasing the rates of other taxes like the excise tax rate for other luxury goods, we also expect the incoming Administration to also consider other sources of “additional revenues” from savings from corruption and better tax collection performance of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BoC).
The all-out war that President Rodrigo Duterte is set to wage against corruption in government will obviously yield more value for the government’s financial resources. Theoretically, the government may not need to increase the rates of other taxes even if it will reduce the income tax rate if 10 to 20 percent of government’s funds will not go be pocketed by corrupt government officials and will instead be used for government programs and services.
The Duterte Administration can also expect higher revenues as it rids the BIR and BoC of corruption, which will theoretically result in better tax and tariff collection performance.
We also expect the incoming Administration to look into the operating systems particularly at the BIR and BoC not only to determine what changes are necessary to eliminate opportunities for corruption but also encourage better compliance to existing tax and tariff rules and regulations. The government needs to recognize that many taxpayers participate in the corruption schemes of some government officials and employees because compliance with rules and regulations using the inefficient systems of these government agencies will cost them more.
It is also highly likely that many taxpayers will no longer evade their responsibility of paying the taxes once they see that the government spends their hard earned money for the welfare of the people and the good of the country.
An honest and responsive government can surely expect honest and responsible citizenry.
(Dr. Ramon Ricardo A. Roque, CESOI, Diplomate)