Biz chambers suggest lowering income taxes, raising consumption
MANILA--The Joint Foreign Chambers of the Philippines (JFC) recommends a tax reform of cutting tax rates of corporate and personal income while raising the consumption taxes, the business group stated on Tuesday.
JFC said the lower corporate and personal income tax rates will attract more investments in the country.
“Contrary to the view of some that reducing corporate and personal tax rates will decrease total revenues and lead to a deficit, the JFC believes reducing these rates will increase investment and trade with higher total revenues being realized from lower corporate and personal income taxes,” the group explained.
The Philippines’ 30-percent corporate income tax is one of the highest in the region compared to Indonesia at 25 percent; Vietnam at 22 percent; Thailand at 20 percent; and Singapore at 17 percent.
Both Vietnam and Thailand reduced their corporate income taxes at the current level from 35 percent in 2010.
Senator Juan Edgardo Angara urges economic managers to come up with a counterproposal
Likewise, personal tax rate in the Philippines is second highest among the ASEAN-6 at 32 percent, only next to Vietnam and Thailand at 35 percent, while Indonesia’s personal tax is at 30 percent; Malaysia at 26 percent; and Singapore 20 percent.
“The country’s current income tax rates were set in 1997. However, adjustments have not been made frequently enough to remedy a growing inequity as more and more salaried workers are paying the highest tax bracket,” added JFC.
In return, higher consumption taxes and excise taxes on gasoline will maintain revenue inflows for the government, JFC said.
“The JFC also advocates raising consumption taxes in parallel with reducing income taxes. However, we recognize that raising taxes can be unpopular and difficult to achieve close to national elections, especially the VAT (value-added tax), which at 12 percent is the highest of the ASEAN-6,” it said.
The business group noted that it is timely for the country to increase excise taxes on gasoline, with fuel expected to stay at very low prices for several years.
Crude oil prices dropped to $45 per barrel from a high of $145 per barrel in 2008.
Aside from tax reforms, the JFC also supports to push amendments on the Bank Secrecy Law and strengthening of the AntiMoney Laundering Act.
JFC is composed of local arms of overseas business chambers of America, Australia-New Zealand, Canada, Europe, Japan, Korea as well as the Philippine Association of Multinational Companies Regional Headquarters.
JFC represents 3,000 member companies trading more than $230 billion with the Philippines and investing some $30 billion in the local market. Senator Juan Edgardo ‘Sonny’ Angara urged economic managers of the Aquino administration to come up with a counterproposal “to break the impasse” on the proposed bill lowering the income tax rate.
Angara made his call after President Benigno Aquino III rejected the proposal, saying it may result in an inflated deficit and create an adverse effect on the improving economy of the country.
”To break the impasse, they should come up with a counter proposal so that we can find some middle ground,” Angara, chairman of the Senate committee on ways and means, said.
”We have been talking about it a long time ago. If you don’t want a big reduction, what percentage you can suggest? It’s not right that when they said no, end of discussion,” he added.
Another proposal worth exploring, Angara said, was the effectivity date.
“We can discuss when cuts will take effect. We can delay it, just tell us when, and we will study it. We can agree on a schedule,” he said.
Angara said if projected revenue loss is what is holding back the government from endorsing the tax cuts, “then we can pinpoint non-urgent expenditure areas which can be cut.”
“The justification we’ve been hearing is that we need taxes to fund the budget. So if we do away with unnecessary expenditures, will you now be amenable to tax cuts?” Angara said.
Angara said the President may have been given an incomplete picture on the proposed tax reform bills.
”My fear was that the President has not been given correct information by his economic managers,” Angara said.
The senator, however, expressed optimism that he would convince the Aquino administration to support his proposal.
During Tuesday’s budget deliberations at the Senate, Angara questioned the P50.34-billion budget proposal of the Department of Finance (DOF) that includes “budgetary support” for Land Bank and Development Bank of the Philippines.
“I’m definitely not in favor. That is not so urgent. We have more urgent needs such as the wage increase through lowered income tax,” Angara said.
Senate President Pro-Tempore Ralph Recto also questioned the P30-billion support allocation for LBP and DBP.