6 November 2016
“We support the Comprehensive Tax Reform Package (CTRP) being proposed by the Department of Finance for legislation in Congress because these proposals are necessary to correct the structural weaknesses of current taxes and tax administration systems and plug the leakages in government revenues. These are the same revenues that we need to finance much-needed social services and public infrastructure.”
This was the statement of civil society group, Action for Economic Reforms (AER) as they laud DOF Secretary Carlos Dominguez for its resolve to pursue reforms that the previous administrations dared not push, due to political reasons.
“Currently, our tax system is riddled with inequality with the wealthy, especially the top richest families, not duly contributing its share of tax revenues while the poor, the wage earners, and the middle income families bear the brunt of a heavier tax burden despite their limited income,” AER said in a statement released to the media today.
According to AER Coordinator, Filomeno Sta. Ana, compliant taxpayers who come mostly from middle-income earners pay taxes considered to be among the highest in Southeast Asia. Worse, they bear the burden of flawed tax payment processes that are exceptionally laborious and complicated.
Sta. Ana said half of government revenues rely heavily on income taxes, such as Personal Income Tax (PIT) and Corporate Income Tax (CIT) and only 30% of the population bears the burden of paying for these taxes.
Based on the Family Income and Expenditure Survey (FIES) and revenue collection data from the DOF, the poorest or lowest income decile of Filipino households pays as high as 14.2% of their income for taxes, mostly coming from indirect taxes, such as VAT and excise.
Meanwhile, the 9th income decile pays a mere 19.8% of their households’ income to taxes and the 10th income decile or the richest 10% of the population contributes a mere 28.4% of their income to the country’s coffers.
“The gap comes from a flawed income tax system imposed on these income groups and aggravated by a complex and inefficient tax system that subjects compliant taxpayers to an inconvenient and laborious tax payment process. Worse, it results to revenue losses that could have, otherwise, been spent for public investments on the people, drive the economy to its desired growth, and deliver the necessary social services, social protection, and other poverty alleviation mechanisms to the poor and marginalized sectors,” Sta. Ana explained.
Among the issues in the current tax system cited by Sta. Ana was the failure to adjust fuel excise tax rates that, over time, was proven to be largely in favor of richer households.
According to the 2012 Family Income and Expenditure Survey, the top 2 million Filipino households or the top 10 percent of households consume almost 60% of petroleum products and commuting cost. The top 1 percent or the richest 200,000 households consume 20 percent of petroleum products and commuting costs.
“We need to reverse the gains by increasing the tax on petroleum products, rightly taxing the rich by their generous consumption of these products. The potential impact of higher excise tax on oil on the low income groups that have direct use on petroleum products, such as the commuting public and public utility drivers, farmers and fisherfolk should be addressed by effective cash transfers and subsidy support,” said Sta. Ana.
Since 1997, excise taxes in petroleum have not increased because current law does not provide for its indexation to inflation. Gasoline excise tax rate remained at P4.35 pesos per liter for the last two decades while diesel has been exempt from excise taxes since 2005.
Environment groups said inflation has eroded the value of these taxes, and thus, weakened the country’s ability to mitigate environmental and health impact of pollution and reduce the costs of climate change-induced calamities.
AER said the tax reform packages should not only raise tax revenues but should be able to collect the right taxes from the right taxpayers. The group sees the removal of the extensive list of exemptions from VAT as one of the corrective measures in this regard.
The group supports the proposal to continue the VAT exemption of medicines to senior citizens and persons with disabilities that are very important to the poor. However, the group affirmed the removal of other exemptions to plug the leakages in revenues that could have been used to fund the universal pension program for the elderly, targeted subsidies for poor elderly and PWDs, and other social services.
“The removal of VAT exemptions is one of the important tax administration measures that can provide a fairer, more balanced environment for taxpayers. We should also strengthen the capability of the Bureau of Internal Revenue (BIR) to detect and counteract tax evasion and tax avoidance, simplify tax payment procedures, and protect taxpayer rights,” said Sta. Ana.
The group is pushing for the repeal of bank secrecy law to allow BIR full access to bank transactions and timely information that may be used to curb abuse occurring from related party transactions. They are also seeking amendments in the National Internal Revenue Code (NIRC) to simplify procedures that are appropriate for smaller taxpayers to minimize compliance cost.
“Tax reform must be responsive to the needs of the people and should be comprehensive to address both revenue generation and tax administration mechanisms. Overall, revenue losses from the flaws in the current tax system prevent the government from sufficiently investing on its people, providing the necessary services to improve the quality of life of Filipinos, especially the vulnerable sectors, and driving the economy to a level and quality of growth that is felt by everyone,” Sta. Ana said. (END)