Gradual cuts to PIFITA tax on interest removed

THE Department of Finance (DoF) said on Monday that its revised proposal to simplify tax rates for passive income and financial intermediaries include keeping tax rates on interest income at 20% instead of the gradual reduction to 15% previously.

Keeping the rate at 20% instead of the gradual decrease by 2028 would generate about P30.8 billion in revenues, Finance Assistant Secretary Karlo Fermin S. Adriano told a Senate Ways and Means Committee hearing on the proposed Passive Income and Financial Intermediary Taxation Act (PIFITA).

The DoF is proposing to keep the 10% income tax rate for dividends instead of raising it to 15% to stay on par with the Southeast Asian regional average, Mr. Adriano said.

“The idea here is that dividends are already subject to corporate income tax, basically having it at 15% will make us not competitive because when you compare it to our neighbors 10% is the average,” he said.

“The goal is to frontload the implementation of the revenue increasing provisions in 2024 and backload some of the administration of revenue-eroding provisions in 2028 when the country is in a better fiscal position.” The adjusted tax reform proposal will decrease the previously projected P83 billion in foregone revenue from changes to taxes on passive income, financial intermediaries, financial transactions and excise tax on pick-up trucks to P12.2 billion in revenue, he said.

Mr. Adriano added that the DoF is working with the National Economic and Development Authority to determine the overall economic impact of the tax reform program.

Senator Sherwin T. Gatchalian, who heads the Ways and Means Committee, said technical working groups will finalize the PIFITA measure.