Will the 2016 election be a crossroads for tax reform?

With the conclusion of the 2016 Presidential elections yesterday, will Filipinos’ hopes for lower income taxes finally see light under the new administration?

Despite the growing clamor of the public and endorsements of income tax cuts from both houses of the Congress and business groups, the current administration stood firm against these reforms.

It was explained that the lowering of income tax may not be beneficial because it may widen the deficit, which could be viewed unfavorably by credit rating agencies.

But now that the current administration’s term is coming to an end, will the much-awaited income tax reduction finally make progress?

In a few days, the new president-elect will be unveiled, but before that happens, let us once again take a look at the presidential candidates’ stance not only on income tax cuts but on broader reforms for the tax system.

Weeks before the election, the Tax Management Association of the Philippines (TMAP), with a view of eliciting the candidates’ tax policy directions to help the voters in making informed judgments, issued tax policy survey questionnaires to the candidates.

The accomplished questionnaires from the candidates or their representatives have been published, and are accessible at www.tmap.org.ph.

Let us revisit some of the answers to the survey:

Vice-President Jejomar Binay will push for the exemption from tax of those earning monthly income of P30,000 or P360,000 a year. Mr. Binay also promised to have the personal and corporate income taxes gradually reduced/adjusted according to inflation.

In addition, no broadening of the VAT base will happen under a Binay administration. Mr. Binay also promised to abolish the estate tax.

Sen. Miriam Defensor-Santiago, on the other hand, expressed her intent to reduce the corporate income tax rate to 25% from 30%, and the maximum personal income tax rate to 25% from 32%.

Ms. Santiago will likewise abolish the estate tax. On the other hand, she plans to implement a gradual increase of the VAT rate to 15% from 12% by 2019, in one percentage point increments beginning 2017. Ms. Santiago is in favor of increasing taxes on consumption.

Sen. Grace Poe has similar plans with Ms. Santiago with respect to the reduction of corporate and individual tax rates. She is planning to bring the corporate income tax rate reduced to 25%, the personal income tax brackets adjusted, with the top tax bracket reduced to 25%.

While Ms. Poe does not plan to increase the VAT rate, she is considering broadening the VAT base by revisiting the exemptions. The exemptions to be removed or retained will be determined by a Tax Reform Commission which she will create within her first 100 days.

She also plans to retain estate tax, but will increase the standard deduction and family home deduction, taking into account the increase in the consumer price index and property values, respectively.

Likewise, former Interior Secretary Mar Roxas expressed support for adjusting personal income tax brackets. He maintained, however, that the matter has to be studied very closely. With respect to the reduction of corporate and income tax rates, he said any changes must be part of a comprehensive tax reform package, and should not be tackled separately.

As regards VAT, Mr. Roxas sees no reason to increase the current VAT rate at the moment, and added that VAT moves should be part of the comprehensive tax reform program. He also believes estate tax is a form of double taxation and is willing to have its continued implementation subject to review.

Davao Mayor Rodrigo R. Duterte also expressed his support for adjusting personal income tax brackets.

He does not plan to increase the VAT rate or broaden the VAT base if elected. On the estate tax, he prefers a careful study of the matter prior to any changes.

Based on the above answers, it seems that positive ideas on tax reform are finding their way to the campaigns.

However, while the proposed courses of action on tax reform appear positive, we have to bear in mind that the election of a new President is not yet a victory. It is only the first step towards the ultimate goal of tax reform.

Let us hope that whoever wins will walk the talk. The question remains -- Have we cast our votes responsibly?

The full replies of each of the candidates/candidate’s representatives to the various tax questions, including those not yet mentioned in this article, may be viewed on the website of TMAP: www.tmap.org.ph

Henesty Z. Salvador is a tax associate with the Tax Advisory and Compliance division of Punongbayan & Araullo