In the book “Revolutionary Wealth” by futurist couple Alvin and Heidi Toffler, there is a quote from Robert Manning of the Council on Foreign Relations that states: “Ponder the world of 2050, an Asia with more than half of the world’s population, perhaps 40 percent of the global economy, more than half of the world’s information technology industry, and world class high-tech military capabilities.” The Philippines, analysts predict, will be the 16th biggest economy by 2050. Such is the promise of the future of Asia-Pacific. Currently, Asia-Pacific is the engine room of the global economy. GDP growth across the region outstrips the West’s while the vast majority of European and North American economies are forecast to grow by less than 2 percent this year, many of those in Asia Pacific are looking for at least 3 percent growth, in some cases more. When Grant Thornton asked 675 business leaders across ten Asia-Pacific countries, through its International Business Report (IBR) covering the 2nd quarter of 2016, about their views on the myriad of challenges and opportunities facing them, Grant Thornton found that overall business optimism is increasing. Business optimism across the whole region increased by seven percentage points to a net 28 percent in the second quarter of 2016. This level is significantly above the IBR long-run average of optimism for the region of 18 percent. Interestingly, business leaders in emerging Asia-Pacific economies reported optimism at 50 percent, while in developed economies it was 20 percent (20 percent more pessimistic than optimistic). Among developed economies, optimism is low in Singapore (-12 percent) and Japan (-51 percent). However, across emerging Asia-Pacific economies, the Philippines has the highest business optimism of any economy in the world in the IBR at 94 percent. Philippine business leaders are expectant about increases in exports and profitability over the next 12 months. (As the survey covers the 2nd quarter of 2016, it does not take into account the new administration’s comments about some of its trading partners.) Many are excited by the prospect of automation transforming the business landscape, while others see it as a potential threat to third party providers of low-skilled labor, a pillar of some economies in the region like India and the Philippines, which are both known for their call centers. Likewise, developed Asia-Pacific economies, in particular, are positive about the Trans-Pacific Partnership (TPP) while others urge diversification of investment into the Asean economic community. India is also gearing up to attract yet more foreign investors in 2017 by introducing the long-awaited simplification of its indirect tax system. However, the region faces significant economic, political and social challenges that, if left unmitigated, could undermine its economic promise. The re-balancing of the Chinese economy, ageing populations, territorial conflicts and the US Federal Reserve’s plans to increase interest rates, are all issues firmly on the minds of business leaders across the region. Asia-Pacific spans a huge and diverse business community, from India to Japan to New Zealand. What is clear from our research is that while businesses remain largely confident about the coming months and years, with many areas ripe with opportunities, threats do linger which could undermine growth if left unaddressed. Grant Thornton recommends that, while there are so many moving parts, now is the time for dynamic businesses across the Asia-Pacific region to reassess the opportunities and challenges present in the regions they operate in. After all, opportunities exist for dynamic organizations that are able to change with the evolving business environment. A healthy proportion of leaders within the region recognizes the transformative power of technology to automate business tasks and processes. Those with the foresight to invest time and resources in understanding the opportunity will be in the best position to gain a competitive advantage over their peers. For firms in the Asean region, the recent commitment to greater economic cooperation is a major step forward and business goals should reflect the improved relationship with their nearest neighbors, which should open new markets offering fresh opportunities. At the same time, the Grant Thornton research highlights the need for businesses across the region to take proactive steps to minimize the risk of overreliance on China. While it will remain a hugely important trading power, what’s clear is that as it continues to evolve, firms should explore ways to diversify. Not just in terms of trading partners, but product and service offerings, too. Ageing populations have also emerged as a significant threat in the region and while it is not the job of the business community to reverse this demographic trend, it needs to react now to stay ahead of the trend. Automation could be part of the answer, but so could closer links with education institutions and a revitalized training program to ensure that the skills needed by their workforce are continuously being developed. Asia-Pacific holds so much promise for the future. Opportunities are knocking; we should be welcoming them, but at the same time we should be mindful of the challenges. Jessie Carpio is a Partner and Head of BPS/Outsourcing of P&A Grant Thornton and concurrently President of P&A Grant Thornton Outsourcing Inc., an entity wholly owned by P&A Grant Thornton. P&A Grant Thornton is one of the leading Audit, Tax, Advisory, and Outsourcing firm in the Philippines, with 21 Partners and over 700 staff members.
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Is the estate tax now a dying tax? The estate tax is a tax on the dead. It is imposed on the value of properties being passed on to the heirs from a person who has passed away. From being a tax on the dead, is it now on its way to being a dead tax? There are currently two bills at the Senate proposing to abolish the estate tax -- Senate Bill 1053 sponsored by Senator Nancy Binay and Senate Bill 107 by Senators Dick Gordon and Loren Legarda. Both bills point to the failure of the estate tax to raise revenue as is expected of a tax. The estate tax contributes less than 1% to total BIR revenue despite the 1997 reform and despite the perception that the rate is high. It cannot be a reliable source of revenue since the tax base cannot be accurately forecast. The tax would not apply to the vast majority of Filipinos who have no wealth to transfer. On the other hand, the small minority of the rich who have the property are often able to do estate planning and minimize their estate taxes Both bills also point to abolition of the tax as the trend. Sen. Gordon notes that, since 2000, 11 countries and two tax jurisdictions, including Singapore, Hong Kong, and Norway, have repealed their estate or inheritance tax laws and policies. Sen. Binay points out that the death of the estate tax should be welcomed as a paradigm shift to make the Philippines an attractive place for wealth to be invested and built up by Filipinos or foreigners, in the country’s best interest. Sen. Binay notes that the attendant revenue forgone would remain elusive if potential taxpayers do not surface because of the existing estate tax. She is positive that the revenue loss will consequently be recouped through capital gains tax upon the eventual sale or transfer of the estate to buyers or donor’s tax if passed on through donation. The estate tax is often blamed for the delays in the legal transfer of properties from parents to their descendants. We often encounter properties currently still in the name of parents, grandparents and great grandparents who have long left the world of the living. Sen. Angara has been quoted as pointing to the estate tax hurdle, the unfamiliarity of Filipinos with estate taxes and cultural avoidance to discuss death-related affairs as the factors leading families to delay settling the estate, resulting in huge penalties and surcharges while use of assets are not maximized. Is the tax then worth saving? Still many camps are of the position that there is hope in the estate tax. It is still a good policy tool and just has to be reformed. The tax is premised on the estate-partnership theory where it is viewed as the share of the State being a participant and contributor in the accumulation of wealth by providing the infrastructure and security. The State becomes a compulsory heir with priority over the legitimate heirs in the distribution of assets. The tax is also viewed as a tool to redistribution of wealth. That is, with a high tax on upon death, property owners will be encouraged to transfer their properties early on whether through sale or gift or donation. In several other Senate and House bills, there are various reforms towards reducing the rates, adjusting the deductions/exclusions, and simplification. With these reforms, the proponents foresee that the tax will not anymore be seen as a hurdle and can contribute more revenue with increased compliance. It is however critical to consider the other transfer taxes in reforming the estate tax. There is an alternative donor’s tax for in vivo transfers. Equity consideration should likewise be revisited considering that the capital gains tax on subsequent transfers are also being imposed on the same fair market value, not on the gain. In other countries, on the other hand, there is an inheritance tax, in lieu of an estate tax. DoF Secretary Dominguez was quoted saying that, after the reforms, those in the business of estate planning will be out of business soon. I personally think that, between an outright repeal and the status quo, the reforms can be given a chance. Here is a tax where taking chances is not too risky. The revenue is not big enough to pose a risk to public finance in case the projected increase coming from improved compliance does not materialize. We can let the estate tax performance speak for itself after the reform. If the objectives do not materialize, then maybe it’s really time for the tax to die. But with or without the estate tax, I think measures should be instituted to hasten the updating of property registers. The hesitation or failure of Filipinos to update the legal records for the ownership of properties should be directly addressed. It is not just the estate tax. The legal proceedings are also perceived to be complicated and costly entailing professional fees for lawyers and surveyors (as well as the middlemen), the various fees and charges, as well as the local transfer tax. Added to this is the fact that many Filipinos are averse to executing their last will, further contributing to delays in the transfers. We neither discount ignorance of these requirements as a contributory factor. Can there be government intervention in this regard? Can government initiate the required processes? Deaths and property holdings should be easily monitored in the present times with the use of technology. And instead of government threatening the heirs with taxes, fees and penalties, it can emphasize its desire to help and the need to keep property records in order. Sen. Pimentel offers an estate tax amnesty as a complementary measure. The estate tax need not be a dead tax. Well, not yet. Lina P. Figueroa is a principal of the Tax Advisory and Compliance division of Punongbayan & Araullo.
A combination of complex regulatory environments and dynamic, competitive markets means that the challenges firms need to hurdle to compete and flourish have arguably never been this daunting. According to Nick Jeffrey, director for public policy at Grant Thornton, “if Boards are not looking ahead, through the right lenses, the risk is they will only spot these issues when they are right in front of them—which may be too late.”
One week from now, we commemorate All Souls Day. Many of us will visit the cemetery to remember departed loved ones. For some, this occasion is a reminder that, after all the toils and struggles in life, our physical bodies will be laid to rest in the same place. Then, what happens? Aside from the spiritual and religious aspects of death, there is another aspect which we might not be able to avoid -- tax. In particular, upon death, our estate could be subject to estate tax. Others call it the death tax. Is this applicable only to rich people?
Asia Pacific is the engine room of the global economy. GDP growth across the region outstrips the West; while the vast majority of European and North American economies are forecast to grow by less than 2% in 2016, many of those in Asia Pacific are looking for at least 3% growth and in some cases more. And while the Chinese economy cools, increasing economic co-operation between its neighbours has the potential to offset this.
I HAVE always thought of life as a coin – a small, round piece of metal with two faces. It is already a truism that when you flip a coin, there is always a 50% probability that you would get a “head” and 50% probability that you will get a “tail” – either head or tail and not both, but no other choices either.
Based on the recent pronouncements from the Bureau of Internal Revenue (BIR), we expected to see improvements in the way the Bureau treats the taxpayers. There has been a promise that we can expect to see a “new” BIR. In a recent forum on policy developments, a key officer of the Bureau emphasized that taxpayer service will be a focus of the BIR. This is a shift from the position held by the previous commissioner. The focus and efforts of the Bureau then were solely on tax compliance and enforcement. Indeed, we are seeing some changes being made, and we do commend the new BIR administration on these; but the question we need to ask first is: How does the BIR define taxpayer service? The relationship between the BIR and a taxpayer has always been cordial at best and adversarial at worst. One party usually eyes the other with some reservations. Given this state of a relationship, does the BIR understand the customer experience that taxpayers look for? If the BIR is not clear about this, there will always be a gap between the expectation of taxpayers and the quality of service that BIR is providing. Both sides will be frustrated. Several studies show that it is critical for suppliers of services to manage customer satisfaction. To this end, there is a common view that a supplier must have an accurate understanding of its customer’s expectations, the customer value proposition. The supplier must strive to deliver such values consistently throughout the customer’s journey. While this is a big challenge, the BIR has the capability to provide better and efficient services. It should strive to provide it. I am not aware if a study has already been conducted by the BIR to determine the quality of service that a taxpayer seek. But based on my experience as a tax practitioner, I see that taxpayers, both individual and corporate, demand security and confidentiality in their tax information, ease of access and dealings, consistency in the use of tax policies and procedures, speed in processing, and fairness and transparency throughout. They expect these qualities of service to be provided to them always in all their transactions with BIR—from the time they are required to register as taxpayer, during the period when they are expected to file tax returns and submit information, and throughout the entire period they remain a taxpayer. To truly deliver better taxpayer service, BIR must map out the different transactions that it has to make with taxpayers and, for each of these touch points, review and evaluate them to ensure that its delivery of services meets the quality expectations of the taxpayers. This is a big task, and the BIR should seriously consider it if it is its intention to serve its constituents better. To emphasize this point, let’s consider, for example, a start-up company that has to register its business for tax purposes. BIR has to assess whether the current rules to register a business—the requirements and processes that the new company needs to go through—are clear, streamlined if possible, and easily accessible. The BIR should also look at the current channels of registration. Do the BIR website and other sites on the internet that businesses would normally visit contain information about corporate registration? Does the BIR system allow online applications—including submission of documents—and send the status of application or notification of approvals online, as well? Or will it continue to require applicants to go to the BIR offices and wait for hours to be attended to? Can the processing of the approval be expedited and can the taxpayer be notified in time in case there are questions or concerns regarding its application? If there are indeed concerns, how fast will these be evaluated and resolved? Is it clear who the decision-maker will be? Obviously, to meet taxpayer expectations, much work has to be done. To me, for the “new” BIR to happen, it requires a set of organizational capabilities, and a drastically different mindset and culture. BIR has to study if it has the right organizational structure, the right people to understand the changing environment and the capability to identify the changes it can introduce under a situation on a limited budget. This process also requires a thorough evaluation of the current tax laws to determine if there are provisions that need to be amended or scrapped altogether because they restrict the Bureau from adopting new practices. We have several examples of government agencies that have been successful in improving the services they provide to the public. With the right tone and strong drive from the top, I am confident that we can have a “new” BIR. Marivic Espano is the Chairperson and CEO of P&A Grant Thornton. P&A Grant Thornton is one of the leading Audit, Tax, Advisory, and Outsourcing firm in the Philippines, with 21 Partners and over 700 staff members.
With the Duterte government’s aggressive pursuit of reforms to bring about a simpler, more equitable and more efficient tax system that can encourage investment, job creation and poverty reduction, the Department of Finance (DoF) recently presented its proposed Tax Policy Reform Program as of Sept. 28. The proposed tax policy packages cover several areas of the tax system such as the personal income, consumption, corporate income, property and capital income taxes.