The business sector is pushing for a simplified preferential tax system for micro, small and medium-sized enterprises (MSMEs), saying this will raise their taxation compliance and enhance their global competitiveness.
Implementing a simplified taxation approach is also one way for the government to raise the additional funds needed to realize its socioeconomic development goals, said Benedicta Du-Baladad, chairman of the Philippine Chamber of Commerce and Industry’s (PCCI) tax committee, in a presentation during a dialogue between the business group and the Department of Finance (DOF) held last week.
The DOF told the business leaders at the meeting that it would be presenting a comprehensive tax-policy reform program to Congress this month, which seeks to raise P1 trillion more from taxes each year to sustain inclusive Philippine economic growth.
Du-Baladad said PCCI is pushing for this special tax regime to encourage more MSMEs to pay their taxes. This preferential tax treatment is already being done in Vietnam, Thailand and Malaysia, she added.
At present, she continued, the current domestic tax environment is marked by complicated tax laws, an unfair tax structure, convoluted processes, and difficult compliance requirements.
She said the country needs to simplify and update the tax system in order to realize inclusive growth and make MSMEs truly competitive in global markets.
Du-Baladad added that MSMEs, which form 99.58 percent of Philippine businesses, find compliance to tax requirements very costly, due mainly to the “defective tax system and poor tax administration” in the country.
She pointed out that as of June 2015, among member-countries of the Association of Southeast Asian Nations, the Philippines had the highest tax rate levied on firms at 42.9 percent of profit.
This was followed by Malaysia at 40 percent; Vietnam, 39.4 percent; Indonesia, 29.7 percent; Thailand, 27.5 percent; Cambodia, 21 percent; Singapore, 18.4 percent; and Brunei Darussalam at 8.7 percent.
For government to support a dynamic MSME sector, she proposes “taxpayer segmentation” instead of the “one size fits all” policy.
“The structure of the tax system, both policy and administration, must consider the specific profile and needs of its taxpayers,” Du-Baladad said.
PCCI, she added, recommends that the special tax regime for MSMEs focus on a simplified taxation system based on a flat tax, a gross income tax, or a final withholding income tax in which there is no need to file returns.
Regarding business tax (i.e., value-added tax [VAT] or percentage taxes), the group suggests increasing the VAT threshold for the percentage tax and doing away with the need to file the returns for the final percentage tax. For the simplified VAT (for those above the VAT threshold), there should also be no need to file the return for the final withholding VAT.
In the filing and payment of taxes by micro and small firms, the PCCI suggests the following: reduce the frequency of filing to just annual returns by removing the monthly and quarterly filings; simplify the tax forms; simplify bookkeeping; and adopt a simple or minimal reportorial requirement, or have none at all; and remove the requirement for CPA certification. The BIR, meanwhile, should consider putting up a special department to handle and craft policies for MSMEs, similar to what the department for large taxpayers is doing.
Summarizing the business sector’s recommendations, Du-Baladad said, “Simplify the tax structure and tax administration, streamline processes and maximize the use of advanced technology, and remove ‘redundant, unnecessary, or useless reportorial requirements.”