ADJUSTING income tax brackets to inflation as well as slashing rates, as proposed by a number of pending bills in Congress, were "well-justified” and would better prepare the country ahead of the Asean integration going in full swing by yearend, according to a study conducted by state-run think tank Philippine Institute for Development Studies (PIDS).
To make up for the foregone revenues from lower income taxes, PIDS is proposing to raise the rates of the value-added tax (VAT), the excise tax levied on oil products and the road user’s tax.
For its part, the Department of Finance (DOF) said that it was firm in its position that the country needed a comprehensive, not piecemeal, tax reform that would include making tax evasion a predicate crime to money laundering as well as easing the bank secrecy law for tax purposes.
"Proposals to reform the personal income tax have gained prominence in recent months. To date, personal income tax reform is part and parcel of the platform of a number of the candidates in the 2016 presidential elections,” noted Rosario G. Manasan in the discussion paper titled "Comparative Assessment of Various Proposals to Amend the Personal Income Tax” published this month.
Manasan said such proposals to cut income taxes or index rates "appear to be well-justified from the perspective of the need to eliminate the bracket creep and easing the tax burden on Filipino personal income taxpayers relative to their Asean neighbors.”
The study noted that in Asean, only Thailand and Vietnam have higher top marginal personal income tax rates than the Philippines’ 32 percent.
Based on PIDS’ computations of the personal income tax burden in the country, it was found out that "the effective tax rates as well as the nominal peso tax liability for a broad range (but not the entire range) of taxable personal income levels are indeed higher when the Philippine rate schedule is applied compared to those when the rate schedules of the other Asean member-countries are used.”
The study acknowledged that all those income tax reduction measures proposed by legislators would result in foregone revenues ranging from a low of 0.4 percent to a high of 1.8 percent of the gross domestic product (GDP).
PIDS noted that despite the "creditable improvements” during the last five years in terms of raising the shares to the economy of taxes and total revenues being collected by the government, they remained "far from ideal.”
"Total national government revenues stood at 15.1 percent of GDP in 2014, more than 2 percentage points below its peak level of 17.5 percent in 1997. Similarly, despite the gains made in recent years, national government tax revenue is equal to 13.6 percent of GDP in 2014, still some distance away from its peak level of 15.3 percent in 1997,” PIDS pointed out.
Also, "despite the Philippines’ high statutory tax rates compared to its Asean neighbors, its tax effort ratio (i.e., tax revenues to GDP ratio) is lower than that of Vietnam, Thailand, Malaysia and Laos in 2013,” it added.
As it is, the country still has unmet public expenditure needs that might not be funded if revenues drop, PIDS said. For instance, "the need for more high quality infrastructure services to sustain the growth momentum and the need to improve access to better
quality basic social services given the government’s mantra of inclusive growth and the thrusts of the newly minted Sustainable Development Goals (SDGs) necessarily expands the country’s financing requirements.”
In this regard, "fiscal prudence dictates that new revenue measures be found to compensate for the projected revenue loss that will arise as a result of the implementation of any one of the various proposals to restructure the personal income tax,” PIDS said. //
