DoF flags legal pitfalls of Senate tax proposals

THE Department of Finance (DoF) said the Senate’s proposed taxes on passive income will be diff icult to implement without thoroughly considering their legal implications, signaling the department’s reluctance to accept the chamber’s amendments to the tax reform program.

Senate ways and means committee chairman Sen. Juan Edgardo M. Angara has said that measures to compensate for the foregone revenue due to the amendments include higher taxes on interest income from foreign currency deposits, higher taxes on dividend income, as well as an excise tax on cosmetic products, and levies on plastic bags. Mr. Angara made these proposals to make up for the dilution of the Finance department’s originally proposed Tax Reform for Acceleration and Inclusion program.

“With regard to taxes on dividends and capital income, that is going to be part of our package in the future. Actually it is a rather complicated issue because its not only on dividends, it’s on basically passive income,” Finance Secretary Carlos G. Dominguez III told reporters on Friday at the Finance department headquarters.

Mr. Dominguez said that the tax on passive income — which the department plans to propose as part of the fourth of the five tax reform packages — must consider numerous complex provisions in the National Internal Revenue Code, and requires more study before a “rational proposal” can be put forward.

“The capital taxes are really complex… we didn’t realize how complex they were. All those different laws are affecting it so it’s really quite complex. We are trying to simplify (our proposals) so that lawyers would have less to do. Because the more complex it is the more you need lawyers,” he added.

“At this point in time we are trying to study the issue and trying to consult with experts to come up with a rational proposal for that.”

As for the tax on cosmetics, Mr. Dominguez said: “We have actually not really studied anything with regard to cosmetics so we cannot really comment on it.”

The Senate’s proposed measures modify a first package centered on lowering the personal income tax rates, the removal of some valueadded tax exemptions, an increase in excise taxes on petroleum and automobiles, the harmonization of estate and donor’s tax rates, and a number of tax administration measures, among others.

Key features of the fourth package, the DoF said earlier, include reducing the tax on interest income on peso deposits and investment, increasing the tax rates for dollar deposit and investment earnings, dividends, equity, fixed income, and other investments, as well as raising the tax on stocks traded on the Philippine Stock Exchange while rationalizing documentary stamp taxes.

Moreover, Mr. Dominguez said that the DoF will continue to push for the House-approved bill, following Mr. Angara’s statement that its version under Senate Bill No. 1408 would maintain up to 70% of the DoF’s proposals.

“You know we respect the Senate, the legislature, that is you know obviously what they perceive their function to be, we respect that. Of course we will continue trying to convince them that what is required is a bit more than that,” Mr. Dominguez said.

Finance Undersecretary Karl Kendrick T. Chua said that the Senate should stick to the Houseapproved version, as it is more well-studied.

“They have introduced the very recent [ measures], which lack study. The package one, we went through very detailed consultations and research, so we are sure,” he said.

The House-approved version of the tax reform program is estimated to generate P133.8 billion.

The Senate committee and the Finance department currently have no revenue estimate for the Senate version of the tax reform package. —