Taxing the informal sector
“The impact may be uncertain but definitely significant, as it will legitimize and regulate a number of transactions either initiated or
participated by the informal sector.”
Is taxing the informal sector antipoor? Does it mean collecting taxes from the poorest of the poor? Is the underground economy included in this sector? Would our legislators be willing to commit ‘political suicide’ by taxing the informal sector composed of majority of our electorates?
The Social Reform and Poverty Alleviation Act (RA 9485) defines the informal sector as poor individuals who operate businesses that are very small in scale and are not registered with any national government agency; and workers in such enterprises who sell their services in exchange for subsistence wages or other forms of compensation.
Clearly, we have constrained ourselves to simply associating the informal sector with the poor and powerless in society. How about the proliferation of those in the underground economy, engaging in illegal transactions and directly competing with those registered and taxpaying companies?
Whether we admit it or not, they have the numbers and the longer it takes for the government to reach out to the growing informal sector, the more injustice will be inflicted on those in the formal sector—both professionals and businesses painstakingly complying with government regulations.
The impact may be uncertain but definitely significant, as it will legitimize and regulate a number of transactions either initiated or participated by the informal sector. But what’s in it for them to join the formal sector? This has been the long- standing question of people being asked to pay taxes that fund our government. It’s about time we run our government like private corporations, where the major shareholders are the Filipino citizens, and quality product/service is expected.
Simplify, simplify
Ninety- nine- point- six percent of businesses are composed of micro, small and medium enterprises ( MSMEs). Despite this, our government remains indifferent to the plight of our struggling entrepreneurs in complying with government rules and regulations.
Compliance costs have become too significant, such that it becomes more convenient and practical to deal with fixers or bribe government employees. The only way to address this is to simplify the entire process to make it easy for anyone who wants to do business.
During our joint meeting with the Tax Management Association of the Philippines (TMAP) to consolidate all proposals to simplify the tax system for our MSMEs, we all agreed on four key results: 1) simplify tax compliance; 2) provide incentives instead of penalties; 3) broaden the taxpayer base; and 4) increase voluntary compliance.
Aside from the basic classification of MSMEs, setting a sales threshold to monitor their compliance is necessary. However, in the process of further simplifying their compliance, the tax administration will have to do more work in monitoring and assisting taxpayers.
Commissioner Henares has been very firm in her position that the BIR is not a customer ser vice agency but an enforcement agency, and that their mandate is to assess and to collect taxes. Time and again, taxpayers have found no shelter in the doors of the BIR. They don’t see the benefits of complying with the tedious and endless tax rules and regulations set by the bureau, resulting consequently to more non- compliance and compromise.
If Finance Secretary Purisima wants to overhaul our tax code, let’s start with one crucial addition to the BIR’s duties: providing excellent taxpayer service. It seems the mission of the BIR has only stayed within the walls of the agency: “The Bureau of Internal Revenue is committed to collect taxes for nation- building through excellent, efficient and transparent service, just and fair enforcement of tax laws, uplifting the life of every Filipino.”
Mr. and Mrs. Santa
In partnership with the YesPinoy Foundation founded by Commissioner Dingdong Dantes of the National Youth Commission and supported by the Abrea Consulting Group,
Fully Booked Foundation, Mary Grace Café, Metrobank ( ASSET) Alumni Scholars Association, and Goldilocks, among other sponsors, we are bringing the joy of Christmas to 500 patients of the Philippine Children Medical Center (PCMC) in Quezon City.
The program is dubbed “Pamaskong handog para sa kabataan: It’s better to donate than to evade!” Last year, we traveled all the way to Kinatarcan Island in Cebu to celebrate a very special Christmas party with 500 kids from families affected by Typhoon Yolanda. This year, it will be extra special as Mr. and Mrs. Santa are coming to celebrate with us.
Mon Abrea is the founding president of the Center for Strategic Reforms of the Philippines (CSR Philippines), a nonprofit organization that champions and consolidates initiatives to empower MSMEs. He is also the Chief Strategy Officer of the country’s first social consulting enterprise, the Abrea Consulting Group (ACG), which offers strategic finance and tax advisory services to businesses, professionals and individuals. Feedback is welcome at consult@acg.ph.