August 18, 2017 | MANILA, PHILIPPINES

DoF expects P433B more by fixing policy, plugging administration loopholes

PLUGGING all tax administration loopholes and improving policy could give the government up to P433 billion more in revenues, the Department of Finance (DoF) said yesterday.

“We can potentially collect around P433 billion or 2.7% of GDP (gross domestic product), based on 2017 prices, if we simplify, address inefficiencies and remove loopholes in BIR’s (Bureau of Internal Revenue) tax administration and tax policy, as well as improve governance,” a DoF statement quoted Undersecretary Karl Kendrick T. Chua as saying.

“That is the tax gap of the BIR, or the potential additional revenues that can be collected if there’s zero leakage, no corruption, no evasion. We can collect that. The P433 billion is the difference between the potential and the actual collection,” Mr. Chua said in a phone interview.

House Bill No. 5636 -- the first of up to five tax reform packages which the House of Representatives approved at the end of March -- shows the potential of improving tax administration. In that first package, tax administration improvement will rake in some P354.2 billion, about a third of the P1.163-trillion projected 2018-2022 net revenues. HB 5636’s first year of implementation alone in 2018 will yield P43.8 billion from improving tax administration.

“But we cannot accomplish this by just implementing reforms in tax administration because room for improvement in this area is limited,” Mr. Chua said in the DoF statement.

Mr. Chua said that the BIR’s poor collection performance -- persistently missing monthly targets -- is due to an outdated tax system that gives both tax collectors and taxpayers too much discretion, as well as superfluous fiscal incentives.

“In fact, the key reason 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,” Mr. Chua said in the statement.

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

“So we’re correcting that by simplifying the tax system so there’s less discretion, and by having stronger administration measures like fuel marking and bank secrecy relaxation to catch the evader.”

Tax policy reforms in the first package consist of broadening the value added tax base while retaining exemptions for seniors and persons with disabilities, increasing excise tax rates for fuel and automobiles, and reducing personal income tax rates to align these with Southeast Asian benchmarks. -- Elijah Joseph C. Tubayan