Additional P433-B revenue seen from tax policy reform

MANILA, Philippines -  The government can raise as much as P433 billion in additional revenue by implementing reforms in the tax policy and administration of the Bureau of Internal Revenue (BIR), the Department of Finance (DOF) said over the weekend.

“We can potentially collect around P433 billion or 2.7 percent of GDP, based on 2017 prices, if we simplify, address inefficiencies, and remove loopholes in BIR’s tax administration and tax policy as well as improve governance,” Finance Undersecretary Karl Kendrick Chua said in a statement.

However, Chua said eliminating the loopholes and inefficiencies in the tax system will be difficult to implement with the existing tax system as these problems are not only caused by weak enforcement, but also a result of “bad policy design.”

“We cannot accomplish this by just implementing reforms in tax administration because room for improvement in this area is limited. In fact, the key reasons for weak tax collection is the large number of tax exemptions and incentives that give rise to discretion and negotiations, and thus tax evasion and even corruption,” Chua said.

“Removing unnecessary exemptions and incentives will make the tax system fairer and easier to administer, thereby increasing collections,” he said.

According to Chua, there has already been a 40 percent improvement in tax administration efficiency since 2006, when the World Bank started measuring the country’s tax gap.

“This means that tax administration continues to be prioritized even when policy is still being considered in the Congress (via the CTRP bill),” he said.

Among the tax policy reforms proposed under the first package of the CTRP include the lowering of personal income taxes, broadening of the value-added tax (VAT) base by removing exemptions, except for senior citizens and persons with disabilities, and the adjustment of excise tax rates for fuel and automobile.

This package is contained in House Bill 5636 or the Tax Reform for Acceleration and Inclusion Act (TRAIN), which was approved by the House of Representatives last May 31.

Based on the latest estimates of the DOF, House Bill 5636 can generate P133.8 billion in additional revenues for the government in the first year of its implementation, and P1.16 trillion until 2022.

The DOF has expressed optimism that the Senate would also act on the passage of the bill swiftly.                                

 “I’m very confident that our legislators are very aware of what is needed in the country, and are very responsive to what the country needs. I’m very confident that we will all sit together, and reason together, and come to a bill that will be good for the country,” Finance Secretary Carlos Dominguez said. 

The finance chief also said he hopes that the Senate would retain the original provisions of the bill to optimize revenue gains, which were cut under the House-approved version.