USAID-Facilitating Public Investment (FPI) Project, in partnership with the Department of Finance (DOF) and the Philippine Chamber of Commerce and Industry (PCCI), conducted in Cagayan de Oro one of its series of Tax Reform for Micro and Small Enterprises (MSEs) roadshows entitled “Deepening Understanding on Tax Reform for Micro and Small Enterprises (MSEs),” 28 November.
DOF Assistant Secretary Maria Teresa Habitan, in her presentation, explained that a tax reform is needed to fund the ten-point socioeconomic agenda of the Duterte administration.
She said that this tax policy reform will create a simpler, fairer and more efficient tax system characterized by low rates and broad base that can promote investment, job creation and poverty reduction.
She said there will also be tax administration reforms in the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC).
According to her, 4.66million or 83.1% of the population will benefit from the proposed tax system. This population consists of employees or workers that earn an annual taxable income including 13th month pay and other benefits and de minimis and other non-taxable income (PERA) minus mandatory contributions of P250,000 and below.
Habitan said that proposed tax policy package one will have no effect to on Minimum Wage Earners. Further, entry-level workers with above minimum wage shall not have to pay an income tax.
This package will reduce personal income tax (PIT) maximum rate to 25% over time, except for the highest income earners to maintain progressivity. Through this, there will also be a shift to modified gross system to simplify PIT system.
However government has also looked into measures to enhance revenue. The proposal is to expand the VAT base by limiting exemptions to raw food and other necessities.
There will be an increase on all petroleum products and index to inflation (diesel and essentials from 0 to 6 pesos per liter, gasoline and non-essentials from around 4.35 to 10 pesos per liter) and increase excise on automobiles.
Further, Lawyer Benedicta Du-Baladad, co-chair of PCCI Taxation Committee shared that tax reform policy should simplify, clarify rules on deduction and remove, minimize areas for discretion. There should also be reasonable limitations on rates of withholding tax, automatic zero-rating for inputs of zero-rated transactions. Pay and file anywhere, reduce frequency of filing, simplify forms and simplify reportorial requirements.
She said that this is important since Micro Enterprises (not more than P3M in asset) comprise 89.78% of the total MSME population in the country.
Further, she said tax system must be customized to the profile and behavior of its taxpayers. Medium and Large taxpayers are ready for a more equitable income-based taxation while MSMEs who cannot keep up with the requirements of an income based taxation may be more comfortable with a simplified ‘presumptive taxation.’
For her part, Malou Lim of Tax Management Association of the Philippines (TMAP) says that the need for a tax reform in the country is important because compared to neighboring ASEAN, Philippines imposes a rate of 32% for a P500,000 income. Meanwhile Vietnam is 32% for P2M, Indonesia is 30% for P1.6M, Thailand 35% for P5.2M, Malaysia 25% for P4.3M and Singapore 20% for P10.6M income. Meanwhile, for corporate taxes, Philippines is still the highest at 30% compared to ASEAN countries.
She added that one of the reasons why there is a low level of tax compliance is high tax rates and penalties not encouraging for start-ups and Micro Small and Medium Enterprises (MSMEs) to register and pay.
Meanwhile, she says that taxpayers can help by talking about tax reforms with the community, leaders and legislators and compute tax due using the proposed tax brackets and voice your comments. (JMOR/PIA10)