Govt eyes taxing self-employed, luxury items in 5-year devt plan
THE Marcos administration aims to expand tax coverage in the medium term, according to the recently released 2023-2028 Philippine Development Plan (PDP).
The national government aims to strengthen and expand the tax program to self-employed Filipinos and on luxury items as well as digital transactions, among others.
The PDP said this can be done through tax mapping by aligning government information technology and data infrastructure to allow the sharing of information related to taxation.
“All individuals registered with government corporations, such as [the] Philippine Health Insurance Corp. [Philhealth] and Social Security System [SSS], can be part of the Bureau of Internal Revenue [BIR] database,” the PDP continued.
The PDP also said that taxing digital transactions, however, would require a review of tax rules to “broaden the concept of ‘permanent establishment’” as well as evaluate the formula for profit allocation.
The government said this will require digital platforms for firms as well as non-resident firms doing business in the Philippines to register with the BIR and collect value-added tax (VAT) from their sales.
Review exemptions
THE administration also intends to review exemptions and preferential treatment provided by tax laws. This includes zero rating of goods and the remaining exemptions in the Tax Code.
“Different forms of income, such as dividends, royalties, capital gains from stock transactions and interest income, are subject to different tax rates. Neutral taxation of all capital income can minimize avoidance and progressively strengthen revenue mobilization,” the PDP stated.
The government will also broaden the coverage of goods subject to excise tax such as those imposed on non-essential articles such as jewelry, perfume, yachts and other vehicles intended for sports.
These items, the PDP stated, are slapped with a 20-percent tax on their wholesale price or the value of importation. By including these in the list of goods covered by excise taxes, the government “would improve the progressivity of the indirect tax system.”
The government will also consider the inclusion in the list of non-essential goods to be slapped with an excise tax on other motor vehicles, such as motorcycles and pick-up trucks.
“The success of this measure will depend on the formulation of effective criteria to determine nonessential commodities. To this end, estimates of the price elasticities of the demand for goods can provide helpful information,” the PDP stated.
Financial sector
MEANWHILE, the government aims to simplify the taxation of the financial sector. Under the Passive Income and Financial Intermediary Taxation bill, a single rate of 15 percent will be imposed on interest income, dividends and capital gains.
The government said the uniformity of the taxation of banks, quasibanks and certain non-bank financial intermediaries will be possible under a 5 percent gross receipts tax.
The administration said the taxation of insurance services, such as pre-need, pension, life and health maintenance organization insurance, will be made uniform at 2 percent of the premium.
The tax on Initial Public Offering and the Documentary Stamp Tax on specific transactions will also be removed to support capital market development.
Further, the government intends to make better use of benefit taxation. A journal article written by economist James R. Hines Jr. defined benefit taxation as “a system in which individuals are taxed according to the benefits they receive from public expenditures.”
“The amount of user charges will then be reviewed to ensure that citizens properly value the services the government provides and that the government can at least recover production and delivery costs,” the PDP said.
“A subsidy component for the poor will be part of the program to address equity concerns. Moreover, an incentive system for government agencies that collect the fees will be devised,” it added.
Consumer spending
EARLIER, a fresh round of income tax cuts would drive consumer spending as it expands Filipinos’ purchasing power and remains as the backbone of the country’s economic expansion in 2023.
Michael Gerard D. Enriquez, President and Chief Investment Officer of Sun Life Investment Management and Trust Corp. (SLIMTC), explained the Train law (Republic Act 10963) on income tax cut kicks in starting January 2023 and “hopefully, that provides additional spending power to the consumers.”
Under RA 10963 or the “Tax Reform for Acceleration and Inclusion” law, Filipinos earning P250,000 and above annually would experience a fresh round of income-tax reductions.
According to Enriquez, this reduction in taxes would fuel growth in consumer spending, which hasn’t been fazed despite higher inflation. The SLIMTC expects the average inflation rate next year to decelerate to around 4.5 percent. But Enriquez emphasized that the accelerating increase in prices of goods has yet to peak some time in the first quarter.