Phl tax system needs overhaul

CEBU, Philippines - It's high time to take a look at the country's current tax system and implement important reforms in it.

Because according to tax expert Raymond Abrea, president and chief strategy officer of Abrea Consulting Group (ACG), "Our current tax system is inefficient and compromised due to corrupt practices of both tax collectors, taxpayers and tax agents."

 It has long been said that corruption in the Bureau of Internal Revenue, the government's main tax collector, is an open secret.

 Tax whiz Abrea said "it is a convenient choice for taxpayers to compromise" because everyone is involved and that "no one will make a formal complaint because nobody seems to be without guilt."

 "However, this is not entirely BIR's fault, and BIR is not really our enemy. It is the ignorance, arrogance and greed of taxpayers including the tax collectors," Abrea told The FREEMAN in an email interview.

'Genuine  tax  reform'

"What we need is a genuine tax reform that will overhaul the entire tax system in the areas of legislation, administration and business practice," said Abrea, who is also the founding president of Center for Strategic Reforms of the Philippines.

 "We need to promote a culture of honesty where the rich pays more taxes, and the poor are not necessarily exempted as everyone must give their fair share. We need a simple, fair and equitable tax system," the tax advocate further added.

 The widespread notion that corruption is still prevalent in government is the major reason why taxpaying has become a burdensome task in this country.

 "We feel tax is a burden, and that we don't see or feel the benefit of the taxes we pay. That has slowly changed under the Aquino administration as DBM (Department of Budget and Management) became more transparent regarding government budget and spending," he explained.

 But Abrea pointed out that there is still a need to make every taxpayer understand how they can comply without incurring too much cost, and how they can benefit from the taxes they pay.

 "At the end of the day, taxes are meant to uplift the lives of our people whether through effective public transport system, infrastructure, health and education services, etc.," Abrea emphasized.

Collecting taxes

There are three ways the BIR collects taxes, through voluntary payments or filing of income tax return (ITR), withholding taxes and investigation of taxpayers.

 Professionals and businesses are mandated to file their ITRs every year on or before the April 15 deadline.

BIR also collects withholding taxes on compensation, deducted by employers from the employees together with other monthly deductions.

 The agency also conducts investigation of enterprises through tax mapping and other auditing processes.

Cutting rates

Abrea believes that cutting the individual income tax rate down to 20-25 percent will be a wise decision to keep doing business in the Philippines competitive, saying the average income tax rate among Southeast Asian nations is 24 percent.

The Philippines imposes some of the highest tax rates in Southeast Asia.

 "We need to improve the ease of doing business, to keep our tax rates competitive to attract foreign investors and to make paying taxes simple and less costly to encourage voluntary compliance," he stressed.

 In terms of administrative reforms, Abrea suggested that taxpayer base be broadened, tax compliance be made simpler and easier and risk-based audit with technology aid to lessen human intervention or discretion on the part of tax collectors be implemented.

 He further said that legislative reforms, on the other hand, should include revisiting the tax code, lowering income tax and focusing on consumption tax (value-added tax), and monitoring and lessening tax exemptions.

 Abrea also called for improving tax awareness and giving incentives to promote honesty in paying taxes.

 Abrea's ACG is a social consulting enterprise that offers strategic finance and tax advisory services to enterprises, professionals and individuals. (FREEMAN)