The Department of Finance (DOF) on Thursday said it has prepared a comprehensive tax-reform study to be submitted to the next administration to serve as guide for incoming President Rodrigo R. Duterte to realize his campaign promise to implement a genuine tax reform that will benefit millions of ordinary wage earners.
“As we transition toward a new administration, we pass on the elements of this study for the new leadership to consider taking forward,” the DOF said in a statement.
The study recommends the granting of an all-in income-tax exemption of P1 million to all wage earners, which will exempt 11 million out of 12 million wage earners from paying taxes.
“This can be coupled with the lowering of the top tax rate for self-employed and professionals from 32 percent to 25 percent within five years, while removing other personal and additional deductions and harmonizing treatment with corporate taxpayers,” the DOF said.
It added that a proposed decrease of the corporate income-tax rate from 30 percent to 25 percent within five years is feasible if twinned with the rationalization of 224 laws that make up our overly generous regime for fiscal incentives.
To safeguard our fiscal position, the DOF recommends the staggered lowering based on a tax-to-GDP safety mechanism. The mechanism triggers the lowering of tax rates if the tax-to-GDP ratio reaches 14 percent in year 1, 14.5 percent in year 2, 15 percent in year 3, 15.percent in year 4, 16 percent in year 5 and 16.5 percent in year 6.
“If the tax-to-GDP does not hit the level specified, the lowering of tax rates may be postponed to the year when the level is reached,” the DOF said.
Other reform measures in the study include:
- Expanding the VAT base by removing exemptions; replacing exemptions with direct subsidies; and increasing the VAT rate from 12 percent to 14 percent to pay for income-tax reform (+P80 billion and +P82 billion).
- Indexing oil excise taxes, which have not been adjusted since 1997, to inflation (+P132 billion).
- Bank Secrecy and Anti-Money Laundering Reform (+P87.5 billion to +P210 billion) as the cornerstone to reforming tax administration.
- Improving the organizational capacity of the Bureau of Internal Revenue and the Bureau of Customs.
“A game-changing package of this scale will capture the imagination of our people, who are ready to take the next step in our nation’s development. Nation-building is a dream best lived out together; we invite policy-makers and citizens alike to collaborate and engage in this monumental task of transformation,” the DOF said.