Tuesday, October 20, 2015

Income tax reform; status.

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On Monday, Belmonte said they may consider lowering income taxes when Congress comes back from its break. Previously, Belmonte said the matter is best left to the next administration.

Quimbo on Tuesday said their proposal involves first the indexation of income taxes to inflation, meaning they will bring tax rates at par with current costs of living.

"Kung ikaw ordinary teacher, noon binabayaran ng 5 percent ngayon 20 percent with indexation to inflation, kahit 'di pa galawin ang tax rates, babalik sa 1997-1998 tax rate mo. We're adjusting it to inflation, babalik ka sa tax rate ng 1997 effectively, mag-uuwi ng mas mataas na take home pay. That's a substantial reduction," said Quimbo.

The second phase calls for both the actual lowering of tax rates from the current structure which has the highest tax rate at 32 percent to simpler brackets like 5, 7.5, 15 and 30 percent at the highest and the simplification of the tax system for businessmen, entrepreneurs and professionals.

Quimbo explained that the current system has so many loopholes that force only 30-35 percent of professionals to pay taxes.

On the other hand, salaried workers whose taxes are withheld automatically have 100 percent compliance. With their proposal, Quimbo hopes the tax effort of professionals can go up to 72 percent to allow government to generate P92 billion in revenues that will offset any revenue losses.

The other phases include aligning corporate income taxes with the rest of the ASEAN, simplification of the deduction system, revisions to fiscal incentives, evaluation of the surcharge excise tax on fuel and adjustments to the value added tax. Quimbo explains, right now government gives up P148 billion in income as perks to businesses.

Initially, the revisions will cost government a P30 billion hole in its revenues with the indexation to inflation, leaving a net loss of P18 billion but this figure can easily be recovered in the succeeding phases. Once the entire program is completed, government would have P82 billion in additional revenues.

"Once we're able to implement all phases, bawing-bawi na gobyerno, sobra-sobra pa," said Quimbo.

Quimbo qualified that there is no need to increase the value-added tax (VAT). Rather, they will just review which products should be imposed the VAT and which shouldn't be charged with VAT.

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