Lowering of corporate tax seen to curtail public sector spending

Internal Revenue commissioner Kim Henares said lowering the corporate tax rate would not only reduce state revenues but also curtail spending on the public sector.

“As far as we’re concerned, if you lower tax rates, there will be an amount of foregone revenue which you can not expect to collect. Therefore, there should be a serious study on what expenditures will have to be sacrificed,” Henares said.

Spending cuts tend to slow the economy as less government money would be pumped into the economy.

Some economists say reducing spending alone could have a bigger long-term effect on the economy.

Government spending on basic services, education and infrastructure helps boost future productivity.

Indonesia is considering cutting its corporate tax rate to as low as 17.5 percent from 25 percent to woo more investors. It has one of the lowest tax collection rates in Southeast Asia.

Henares said the Philippines and Indonesia should not be compared as they are two different countries. Indonesia posted the weakest economic growth in the first quarter.

“Each country is differently situated. They may have lowered the rate at 18 percent but they have less deductions while we have so many allowable deductions,” Henares said.

For his part, Finance Undersecretary Gil Beltran said any plan that would result in reduced revenues for the government must be accompanied by a replacement measure.

The BIR slashed its revenue forecast for this year to P1.67 trillion due to the expected losses from the higher tax exemption on bonuses and 13th month pay.

Henares, nevertheless, remains committed to go after tax evaders through stepped-up monitoring and the regular filing of cases against errant taxpayers.

The BIR will continue to rely on third party information such as utility bills data and registration data from other agencies to further widen the tax net and encourage people to pay the right taxes.

The Department of Finance wants BIR to raise tax collections to at least P2 trillion next year to provide more funding for necessary infrastructure investments in a bid to catch up with other Asian nations.