Last Sunday’s presidential debate was a good barometer of the candidates’ priorities. Almost all of them talked about their promises from fighting crime to combating poverty. One candidate, however, brought them to the ground with this reminder: Where are you going to get the money for this?
Tax strategy may be the least sexy among the campaign programs and the first presidential debate hardly touched on it but it is supposed to be a cornerstone of a government’s performance.
As Aquino administration comes to a close, we have been receiving reminders of what it has accomplished and I, for one, accept that there are some noteworthy accomplishments that need to be commended. Yet as taxpaying Filipinos, we wished there could have been much more.
In my own checklist, one of the items I had fervently been hoping for was for this administration to take a close look at our tax system and assess if it can support the needs of our nation in the future. With a population of more than 100 million people and counting, can the Philippines rely on the current tax system to produce adequate resources that the country would need in the next years?
There has been a growing clamor to make changes in our tax system and numerous justifications have been put forward on why we need these.
For one, income tax rates are uncompetitive, being the highest in the region, both for individuals and corporations. The income tax burden is regressive, with those in the middle-income level families unfairly being subjected to the same marginal rates as those among the well to-do segment of society.
The compliance process and requirements in paying taxes are so complex. I recall a remark I once heard that our tax system is so complex and no matter how much you want to comply, you are bound to fail.
Our tax laws do not support start-ups and small businesses. Currently, the solution provided under our tax system is to give tax exemptions for certain levels of revenues or income. Sadly, this system incentivizes people to continuously under-declare their income to avoid going into the tax net. The impact of this behavior is significant considering that our country has a large group of self-employed individuals and small businesses, including those organized by families of our millions of OFWs. I believe that a number of them would be willing to pay taxes if the system is simple and easy to follow.
Some parts of the taxation law are vague, making them susceptible to different interpretations. The long-standing legal principle that the BIR’s right to assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers should not be a justification for the unabated changes in interpretation of our tax laws. Uncertainties are not good for growing businesses and in attracting investments.
It is clear that there are significant gaps in our tax laws that have to be addressed and that inconsistencies and incongruities have to be harmonized. The government has shown great resistance to any reform that will lower tax rates or reduce the taxable income brackets arguing that our country needs the tax revenues to support expenditures.
We can all relate to that concern. In business management, dealing with the challenge of growing expenses is a very familiar task for us and there is always the pressure to look for new revenue streams. There are also always some suggestions to drop non-performing segments of business and replace them with new products or services. Such decisions are difficult to make because there is natural reluctance to change the status quo. Why would we want to kill the goose that lays the golden egg, right?
However, we must keep in mind that it is also our responsibility as leaders to develop a strategy to pursue growth and ensure the sustainability of our organization – not just today but the future as well. Likewise, it is important for us to ensure that our businesses are aligned with our organization’s overall present and future goals. It’s really not all about profits.
I believe that our country’s leaders must look at the fiscal policies of our country in the same strategic manner. Specifically, it should assess whether our tax system is able to raise much needed revenues for our country based on current realities and emerging trends like urbanization, technological advancement, and globalization. In formulating a new tax structure, the government must also take into account other pressing needs like job creation, promotion of entrepreneurial activities, support of domestic industries and the attraction and retention of much needed foreign investments. Moreover, the government must recognize that with globalization, business structures and transactions have been transformed and we, together with other countries in the region, are competing against other countries for investments.
Tax policies and investment policies can no longer be confined in separate silos. They are actually two sides of the same coin.
Rather than merely looking at the income tax rates or other specific provisions, it is best to undertake a comprehensive review of the present tax system. But who should do this? Well, Congress and the executive department must work together and involve citizen groups who represent taxpayers’ interest. Through the conduct of a serious dialogue among the parties concerned, an acceptable comprehensive tax structure can be developed that will promote successfully the interest of the country and its people.
Comprehensive tax reforms need several years to take charge and implement. That is why we need to start with this process—now!
Let us choose a president who can lead us to take that very important step.
P&A Grant Thornton is one of the leading Audit, Tax, Advisory, and Outsourcing firm in the Philippines, with 20 Partners and over 700 staff members.
As published in The Manila Times dated 24 February 2016.