Review of taxes on financial system sought

The Department of Finance (DOF) would likely push for a more thorough and all-encompassing review of the tax environment of the country’s financial system.

Newly-appointed Finance Undersecretary Gracia M. Pulido-Tan who replaced retired Cornelio C. Gison said "whether the VAT remains in place or the GRT is returned, the entire tax environment on the financial sector should be reviewed thoroughly."

Tan noted that there were a number of discrepancies, "impurities" and misunderstanding in the application of the VAT on the financial sector.

"Let us learn from the problems encountered since the start until the time it was implemented," Tan, a certified public accountant and lawyer who once served under the Presidential Commission on Good Government (PCGG), said.

Likewise, the newly-installed finance undersecretary declared that she was open to suggestions to commission a review committee headed by a third party to undertake both a thorough review as well as make recommendations for a wholistic and all-encompassing tax environment for the country’s financial sector.

Tan however, stressed the importance of transparency in the selection and appointment of the third party. Likewise, the review committee should be composed of representatives from the financial sectors, government and the so-called third party.

The new undersecretary is also a professional lecturer on taxation at the University of the Philippines (UP) while she once held senior positions with prestigious law offices specializing in corporate and tax practices.

The implemenation of the VAT on the country’s financial sector this year has raised a howl to a point that banks filed petitions seeking a court injunction versus the tax law. One petition sought to declare as unconstitutional the National Internal Revenue Code (NIRC) and Bureau of Internal Revenue (BIR) Revenue Regulation nos. 18-99 and 12-2003, which implements the law regarding the controversial VAT.

However, there had been calls for a thorough review of the entire tax structure of the banking system.

The present tax structure is layered. There is confusion over the implementation of the input and out tax, withholding taxes, tariffs on foreign and local currency transactions, corporate income tax, taxes on overseas banking units (OBU), and a host of taxes that are confusing both the financial sectors as well as the investing public. The entry of the VAT replacing the GRT has only made things a lot more complicated, economists and tax experts said.

"The layering has altered the executive structure, and it has actually made circumventing the law more convenient rather than implement the spirit of the law," lamented Johnny Noe Ravalo, for chief economist of the Bankers Association of the Philippines (BAP).

Ravalo said that the current tax environment affecting the country’s financial sector has resulted in lower or poor tax collections. Rates have not changed for the last four to five years.

"Maybe the rates are no longer responsive to the times," he added.

In fact, there are initial studies that indicate a lower tax collection for the cash-hungry national government under the VAT environment over the more popular GRT. In the same light, the new tax structure would result in passing the tax to the investing public already weighed down by various direct and indirect tax forms.