Tax reform possibly delayed this year

The last update I wrote about the tax reform in the Philippines was around in May of this year talking about Tax amnesty and before that a three-part breakdown of the tax reform proposal. Since then, I was just on a wait and see mode for any major developments or changes.

The Tax Reform for Acceleration and Inclusion (TRAIN), has traveled from the halls of Department of Finance to Congress without any hitches, however, the ball now is in the Senate’s court with the target deadline to be signed into law by President Rodrigo Duterte by the end of the year.

The first of five tax reform packages, as embodied in House Bill No. 5636, was approved by the House of Representatives on its final reading last May 31. Meanwhile, the Senate has ended the period of interpellations of Senate Bill No. 1592 and will resume deliberations for possible amendments when session resumes in November.

Among the pertinent provisions of the tax reform are the increased level of taxes of primary consumer products such as petroleum and sugar-sweetened beverages. To summarize, the Senate favors a lower rate of tax on fuel and falls short of the House recommendations. The revision in revenue goals weakens the ability to support higher investment levels.

As a result, the forecasted revenue gains from the House version of Php70 billion falls to Php40 billion under the Senate bill.

Working against time

Legislation in a bicameral legislative assembly requires that ultimately a final version of the conference committee will have to be negotiated between the two houses. The senate plenary sessions on Nov. 13 to 15 is in conflict with our hosting of the Association of Southeast Asian Nations (ASEAN) Summit.

It is also not clear if the sessions planned for Nov. 16 and 17 would still push through. Although it is a priority bill, the 2018 national budget also needs to be tackled and passed. The budget measure would take priority because failure to approve this within the year would result in the country operating on a reenacted budget next year.

Congress is left with roughly four weeks to pass both the 2018 national budget and the TRAIN before it adjourns for the year.

Additional areas to look at

Another area of engagement that I think we should also look at is the overall efficiency and perhaps even the much needed ‘MODERNIZATION’ of Tax collections. Take for example the VAT (Value Added Tax), the efficiency of the tax in producing revenues is only at 35 percent compared to 60 percent for both Thailand and Vietnam.

Although the bills have tackled this as well (Congress removed 70 exemptions while Senate only 37), I’m more inclined to talk about the ‘actual’ collections with the use of technology across the tax collecting departments (BIR, Customs, SSS, Philhealth, Pagibig) to name a few examples.

Civil Service Salaries in tax collection departments may need to be updated and upgraded and perhaps even an incentive system to mitigate graft and corruption. Imagine you are a tax collector with a salary of 15-20k, tasked to collect millions. That sort of temptation is enormous and real (unless if you are a saint).

"Today, it takes more brains and effort to make out the income-tax form than it does to make the income." - Alfred E. Neuman

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The writer is an RFP® –Registered financial planner and helps people through CERTA, Inc.’s financial education programs, estate planning & investment advisory (www.certa.ph). He’s also a Real Estate Broker, author of the award-winning personal blog– www.vernongo.com; Vice Chair –www.cebucontentcreators.com