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Business

Tax reform package 4 may yield P25 billion more revenues

Louise Maureen Simeon - The Philippine Star

MANILA, Philippines — The remaining tax reform package of the previous administration is expected to provide some P25 billion in additional revenues as it seeks to simplify the fiscal structure for passive income, financial services and transactions in the country.

House Bill 4339, which was formerly known as the Passive Income and Financial Intermediary Taxation Act (PIFITA), was recently approved on third reading by the House of Representatives.

The measure intends to fix the tax system to deepen capital and financial markets.

The government is expected to collect a total of P25.2 billion over the next six years through the implementation of the law.

Finance Secretary Benjamin Diokno said the reform would enable the government to fund priority programs, create more and better jobs, and support the inclusive and sustainable growth of the economy in the long term.

Based on the approved bill, the number of tax rates on passive income and financial intermediaries will be reduced from 83 to 58.

“This will make our tax system more regionally competitive and the rates comparable to our Southeast Asian neighbors,” Diokno said.

The bill imposes a final tax of 20 percent on interest income earned from currency bank deposits, deposit substitutes, trust funds or similar arrangements.

It also harmonizes the tax rates on interest, royalties, dividends and capital gains to a standard 15 percent. A single gross receipt tax rate of five percent will likewise be imposed on banks, quasi-banks and other non-bank financial intermediaries.

Similarly, pre-need, pension, life insurance and health maintenance organizations will be uniformly taxed at two percent of premiums.

Further, some exemptions and preferential tax treatment will also be removed to broaden the tax base.

The distinction between lending and non-lending income and the maturity of the instrument will be removed. All types of income, with the exemption of dividends, equity shares and net income of subsidiaries will be taxed five percent.

The provision on documentary stamp tax will also be amended and will remove minor DST with low revenue to reduce friction cost.

In trading, shares of stock of a domestic corporation listed and traded in any foreign stock exchange will be subjected to the lower stock transactions tax instead of the 15 percent capital gains tax to allow the company to expand its sources of capital.

Excise tax exemption on pickup trucks will likewise be removed to enhance the efficiency of the tax system and avoid preferential treatment for certain vehicles.

The exemption was previously under the Tax Reform for Acceleration and Inclusion Law, which was the initial package of the tax reform program of the Duterte administration.

Pickup trucks were granted special tax treatment for their utility as workhorses for small business owners and professionals.

Diokno said the proposed reform provides the government with new tax administration powers to fully implement passed tax reforms and empower revenue administration.

“This will allow the country to adhere to international tax standards, such as providing for a legal cover to automatically exchange tax-related information with other jurisdictions,” he said.

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