New Congress asked to reform tax laws affecting financial sector

Finance and Board of Investment (BOI) officials and leaders of the Philippine Chamber of Commerce and Industry (PCCI) are hammering out a common reform bill on the taxation of the financial sector.

Dubbed as the Financial Sector Tax Reform (FSTR), the proposed legislation is getting finalized after talks were made between representatives of BOI, the Department of Finance (DOF) and the tax division of PCCI.

The draft law is expected to be submitted to both houses of Congress when they start sessions in July.

The PCCI said that highlights of the tax reform bill will be the impositon of a 10 percent financial institution tax (FIT) to replace the five percent gross receipt tax now in place; bridging the gap between the capitalization requirement between local branches of foreign banks and domestic banks to level the playing field; and the overhauling of the documentary stamp tax system and the taxation of foreign currency deposits.

The reforms are meant to give the financial sector the elbow room to fuel the growth of commerce and industry by opening better access to credit.

The BOI has pointed out that among East Asian nations, the Philippines today ranks highest in corporate income tax rates at 32 percent of gross income before tax.This is higher than corporate income taxes in Singapore, Thailand and Malaysia.

"In the absence of fiscal incentives, the effective tax in the Philippines is 47 percent, observed BOI director for investments, Lucita Reyes.

The meeting of minds in pushing for a common stand in reforming the tax system governing the financial sector has been seen as a breakthrough in resolving the oft repeated clash between the granting of tax perks to new investors against the need for government to collect more revenues to enable it to deliver government services and push through its development projects. – Abe Belena, Philexport News & Features