Changing tax rates might affect economic recovery – Gatchalian

The Senate Ways and Means panel, led by Gatchalian, tackled various measures that seeks to “simplify” the taxation of passive income, financial services, and transactions by reducing the number of tax rates and harmonizing the tax rates on interest, dividends, capital gains, and business taxes imposed on financial intermediaries. (Photo: Senate of the Philippines/Facebook)

MANILA – The proposal of the Department of Finance (DOF) to change tax rates on certain sectors was welcomed on Monday by Senator Sherwin Gatchalian but warned that it might have an impact on the economy which is still recovering from the coronavirus disease 2019 (Covid-19) pandemic.

The Senate Ways and Means panel, led by Gatchalian, tackled various measures that seeks to “simplify” the taxation of passive income, financial services, and transactions by reducing the number of tax rates and harmonizing the tax rates on interest, dividends, capital gains, and business taxes imposed on financial intermediaries.

This is through the Passive Income and Financial Intermediary Taxation Act (PIFITA) or the Package 4 of the Comprehensive Tax Reform Program (CTRP) which is expected to provide PHP25 billion additional revenues to the country.

“I read PIFITA. I read the entire bill and there are three words that I would like to describe PIFITA — “Simplify, Simplify, Simplify”. Simplify in terms of understanding the taxation covering the financial industry, simplify compliance from the point of view of our taxpayers and simplify tax administration from the point of view of our revenue collecting agencies. Three words that will enhance the experience in terms of administration and tax collecting covering our financial institutions,” Gatchalian said.

“There might be some negative impact in terms of revenue collection, in my point of view, this negative impact might not be timely because we’re still reeling and recovering from the effects of the pandemic and one of the huge effects of the pandemic to our fiscal health is the increase in terms of public debt, during the pandemic we actually increased public debt from 30 percent of our GDP (gross domestic product) to almost 60 percent of our GDP,” he added.

He said outgrowing a public debt means that tax collection must be efficient and should not reduce revenues.

Department of Finance (DOF) Assistant Secretary Karlo Adriano said the goal of the reform is to redesign the financial sector to be simpler, fairer, more efficient, and regionally more competitive.

It also aims to make general tax compliance easier and taxation equitable to ensure progressivity, boost tax effort, and increase tax trust.

Adriano said the country’s passive income and financial intermediary tax system needs to be reformed to rationalize multiple tax rates and bases, lower the current high rates, reduce the tax burden of low-income persons, deepen the shallow capital market, level the uneven playing field among financial intermediaries, harmonize the unequal treatment on insurance products, reduce high friction cost of documentary stamp taxes, lessen administrative and compliance cost, and broaden the narrow tax base due to many exemptions and special rates.