Philippines wants new tax structure
The Philippines is seeking financial assistance from international donors to craft a new taxation structure for the country, which will be ready when all revenue leakages are plugged under the present system.
“It is something to be looked at. I have asked the World Bank, International Monetary Fund and the Asian Development Bank to come up with the ideal tax structure for the Philippines,” Finance Secretary Cesar Purisima told reporters over the weekend.
Purisima was asked by one of participants of the recent Philippine Investment Summit for Global Fund Managers whether the Aquino economic team intends to shift its tax structure from the current income-based to a consumption-based regime.
In response, the finance chief said, “What we want to do is broaden the tax base first and afterward, go into policy reforms.”
He said the policy reforms shall take place once the revenue loopholes in the current structure are plugged.
“If we are able to plug the revenue leakages, we would have the moral ascendancy to ask Congress to institute reforms,” Purisima said.
A World Bank study estimated that the government loses revenues equivalent to about 4 percent of the country’s gross domestic product, or about P300 billion.
An indicator of economic performance, GDP is the amount of final goods and services produced in the country.
At present, companies doing business in the Philippines pay corporate income tax at a rate of 30 percent or the minimum gross income tax at 2 percent, whichever is higher.
Professionals and individuals pay graduated tax rates ranging from 5 to 32 percent, depending on the income.
On top of that, the government likewise withholds a 20-percent final tax on passive income such as interest income from banks and loans.
Other sources of taxes are in the form of value-added tax at the rate of 12-percent, and a graduated excise or privilege tax depending on the declared value of the item to be levied.
The previous administration had wanted to increase the VAT to 14 percent in exchange for lower income tax rates. The planned shift however failed to muster support from Congress.
The current administration’s tax measures include changes to the Sin Tax Law and the reduction of fiscal incentives, both of which have languished in Congress.
Purisima said the forthcoming full integration of Asean requires aligning the country’s tax structure with that of its neighbors.
“With the Asean integration, our tax structure must also be competitive,” he said.