THE International Monetary Fund (IMF) supports the government plan to relax the country’s stringent bank-secrecy law as part of a major overhaul of the country’s tax system.
The 189-member IMF made this known in a report submitted by a panel of experts who visited the country recently as part of the annual Article IV consultations. In that report, the IMF endorsed the adoption of the comprehensive tax-reform plan of the Department of Finance as long as this was “net revenue positive with due attention paid to equity.” It said easing the rules on accessing bank deposits should help improve the efficiency and equity in revenue collection.
In a country assessment report released last month, the IMF Executive Board said it “supports the authorities’ push for a comprehensive tax policy reform that is net revenue positive with due attention paid to equity.”
The IMF “staff supports the DOF’s efforts to amend the bank-secrecy law to allow the tax authorities access to individual bank-account information and make tax evasion a predicate crime for money laundering in order to improve the efficiency and equity of revenue collection.”
This so-called staff report was released last week following the July to August annual consultations with countries like the Philippines on economic policies and developments under President Duterte.
The World Bank and the Spanish government have, likewise, thrown their support behind the tax-reform proposal.
The DOF submitted last month the first package of the tax-reform plan to both chambers of the Congress, dubbed as the Tax Reform for Acceleration and Inclusion Act, to help the government generate revenues to bankroll the government’s 10-point socioeconomic agenda for inclusive growth, according to Finance Secretary Carlos G. Dominguez III.
At a recent business forum at the Shangri-La Hotel in Taguig City, Dominguez said the measures under review include relaxing the strict bank-secrecy law and making tax evasion a predicate crime to money laundering. Dominguez also bared plans at a separate forum to mount four tax-amnesty programs as part of the DOF-proposed overhaul.
In the IMF report, the staff team said the DOF has come up with “a package of reform measures that includes lowering personal and corporate income taxes and simplifying tax processes.”
“The revenue erosion from the lowering of income-tax rates would be offset by reform initiatives that include broadening the tax base and collection, reviewing fiscal incentives, adjusting the fuel excise-tax rates, imposing taxes on unhealthy food items and eliminating some VAT [value added tax] exemptions,” it said.
With the reform measures in place, the so-called revenue effort should increase to 17 percent of the country’s GDP in 2018 to about 18 percent of GDP by 2022.
The staff team said it, likewise, supports the plan to “increase public infrastructure spending to at least 5percent of GDP over the medium term.”
“The authorities’ overall strategy for infrastructure development is to increase infrastructure spending to 6 percent to 7 percent of GDP during the period 2017 to 2022, to attain higher growth potential in the medium term. In support of this, the authorities have initiated reforms in investment programming and budgeting,” it said
Package One includes measures to lower the personal income-tax rates; adjust the fuel-excise tax and indexing it to inflation; broaden the VAT base; and restructure the tax on automobiles, except for trucks, buses, cargo vans, jeepneys, jeep substitutes and special-purpose vehicles.
While Package Two of the tax-reform plan, now under review at the DOF, involves reducing corporate income taxes and reviewing fiscal incentives to ensure these are time-bound, performance-based, targeted and transparent, just like in other countries.
Dominguez has informed legislators the DOF has “put the packages together so that there will be a balance between revenue-eroding measures and revenue-enhancing measures.”