The dilemma of Philippine tax reform

The call for tax reform is ever growing in the Philippines, out of fear we are being left behind by our neighbors in Southeast Asia, coupled with concerns that our people are at the mercy of the current tax system.

Our legislators have put forward revenue bills to finally amend the almost two decade-old income tax brackets set forth in the 1997 National Internal Revenue Code of the Philippines. Unfortunately a few days ago, the House of Representatives shelved the bill proposing the reforms.

The House Committee on Ways and Means said that it was influenced by the President’s unwillingness to endorse the bill. In view of the incoming recess of Congress, the House finally decided that the remaining days of their regular session will be dedicated to finishing deliberations for the 2016 national budget. This undeniably will delay, or worse, mark the end of income tax reform under the present administration.

Under the 1987 Constitution, all revenue bills must originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Although it seems that the Senate of the Philippines is supportive of tax reform, it cannot however make a more definitive move unless the House gets its own version of the bill approved. Having seen that the House no longer deems the time sufficient to discuss the income tax reform, the Senate and the public turned out to be waiting in vain.

What then is the role of the President in all these? Why has his disapproval seem controlling in deciding the fate of the revenue bill? It must be noted that all bills passed by Congress, before it becomes a law, shall be presented to the President. If he disapproves the bill on lowered income tax, he will simply veto it and return the same with his objections to the House. Thus, another round of deliberations ensues. Not to mention that Senate shall likewise pass upon the reconsideration of the President’s objections. Imagine just how much time and efforts will be wasted if the President will just veto the bill. Who knows, the bill might not even survive the reconsideration of Congress after the President vetoes. 

The Administration fears that lowering income tax will negatively affect the budget. I believe that the issue lies not in the amount of tax collection. Rather, it is the efficient management of funds collected. Full realization every peso’s value is a must, and blocking tax reform must not be the government’s safety net.

In addition, the taxes foregone are estimated at P30 billion, relative to a P3-trillion budget. Such an amount will not really have a noticeable impact, should the government manage the impact of the tax reform properly.

Tax professionals are appealing to the chief executive to change his mind and support the lowering of Philippine income tax. Recently, the Tax Management Association of the Philippines launched a petition urging the president to reconsider his position on income tax reform. I certainly hope that more people come forward and support this cause. Remember, unity is strength and strength comes in numbers. Let our voices be heard and don’t let tax reform die at the hands of the present administration.

Could this be the end of tax reform under the current President or will our voices be loud enough to make him reconsider?

Lorraine G. Taguiam

Let’s Talk Tax

P&A Grant Thornton