Inefficient tax system due to narrow base, high rates

CEBU, Philippines — The country’s inefficient and burdensome tax system is due to the very narrow taxpayer base, high compliance costs and low voluntary compliance among the self-employed and professionals, and high tax rates, a tax expert said.

Raymond Abrea, president of Abrea Consulting Group, cited these three key factors that make the tax system efficient, which should be address along the government’s tax reform proposal.

"Tax policy reforms are both urgent and important but it has to be supported with well-funded administrative reforms and properly implemented budget reforms for us to see where our taxes really go," he told The FREEMAN.

First, he said the government must address the narrow taxpayer base and low voluntary compliance.

He said this can be addressed by having mandatory TIN registration for all those availing of government services including students of state universities, opening bank accounts, VISA application for travel abroad or for OFWs, purchase of real property and luxury items, incorporating either for profit or non-profit organizations to make sure every citizen is in the taxpayer database whether exempt or not.

He also cited the need to have mandatory TIN registration for graduating students, voters registration or even phone/car registration; and mandatory annual ITR/tax clearance for PRC license renewal to improve voluntary compliance among professionals

There should also be online access to personal tax information especially for employees to verify taxes withheld from their compensation and shared database system among government agencies.

"Earmarking is necessary but it's more important for us taxpayers to see and feel the benefits of the taxes we pay, not just promises," Abrea said.

Compliance costs

The tax expert also urged the government to simplify bookkeeping and tax compliance to cut costs.

"Annual filing of tax returns in lieu of the monthly and quarterly filing for small businesses is one of the best amendments in the tax code, continuous review of all BIR and BOC documentary requirements to further simplify and make compliance easier and less costly," Abrea further explained.

"Make manual bookkeeping optional since almost all businesses are using computers and encoding their sales via spreadsheet, and penalizing small businesses for not manually accomplishing the books of accounts is insane," he added.

He also noted that collecting agencies must also undertake full automation, professional trainings on risk-based computerized audit procedures, saying BIR audit is useless and prone to corruption.

"We need more public servants who are qualified and committed in helping taxpayers especially the startups and small businesses comply with tax regulations," he said.

Tax rates

Furthermore, lowering the country’s high tax rates is also obviously needed.

Lowering the income tax-exempt threshold from P250,000 to P150,000 is simply adjusting it to keep minimum wage earners exempted, he said.

He also cited that lowering estate tax from 20 percent to flat 6 percent is okay but will benefit more the rich, not the poor.

"Lowering donor's tax from 30 percent to flat 6  percent will further erode the income tax base as more corporations and professionals will choose to claim charitable contributions to reduce their taxable income, and is definitely favorable to the rich and businessmen, not the employees," he said.

"Increasing higher excise tax on cars is also necessary if we want to collect more from the rich, but I prefer the 200 percent rate proposed by DOF," he said.

Imposing excise tax on diesel is also necessary as long as the government subsidized the PUVs at least it the first 3 years of implementation to make sure taxes are collected from the SUV owners and not from the poor again.

He also deems imposing excise tax on cosmetic procedure as a good source of additional revenue;

Instead of imposing tax on sweetened beverages as a health measure, he said the government should instead just increase tax on alcoholic beverages and cigarettes. (FREEMAN)