The Department of Finance (DOF) wanted the eight percent gross receipts tax (GRT) on self-employed and professionals as an option and not a mandated scheme for income tax payments as stated in the House of Representatives’ version of the tax reform program.
In a Senate public hearing, Finance Undersecretary Karl Kendrick Chua said the agency proposed the government provides two systems for self-employed and professionals with gross receipts or gross sales of P3 million and below in which the graduated system will be maintained, while the eight GRT as an option for tax computation.
“The House Bill (5636) mandates all self-employed and professionals whose gross sales or gross receipts are below P3 million to pay the 8.0 percent flat tax on gross sales or gross receipts in lieu of the income and the percentage tax,” he said.
He noted the three percent GRT would account for percentage tax and the five percent will be the average effective tax rate that self-employed and professionals are paying as share of their gross sales or receipts.
But for self-employed and professionals whose gross receipts or gross sales exceed the P3 million-threshold, they will be taxed in the same manner as corporations in terms of rate, the minimum income tax and allowable deductions.
Senator Sonny Angara, chairman of the Senate ways and means committee which is conducting the hearing on the tax reform measure, welcomed a provision in the proposed comprehensive tax reform package that seeks to exempt micro businesses and marginal income earners from income tax.
Under present tax regulations, marginal income earners are self-employed individuals deriving gross sales or receipts not exceeding P100,000.
Among them are farmers and fisherfolk selling directly to consumers, small sari-sari stores, small carinderias or turo-turos, and drivers or operators of a single unit tricycle.
Currently, marginal income earners are exempted from paying business taxes such as VAT and percentage tax but are still subject to income tax.
Micro businesses with assets below P3 million may be exempt from income tax, pursuant to the existing Barangay Micro Business Enterprise law, but they need to register first at the City Office of the Treasurer in their area.
“By automatically exempting, in effect, marginal income earners and micro businesses from income tax, we would finally afford them equal protection and benefits that the minimum wage earners have long been enjoying,” Angara said.
Under the bill approved by the House of Representatives, a distinction has been made between compensation income earners and the self-employed or professionals in the proposed new income tax regime.
According to the Department of Finance, it seeks to impose a one-time flat tax to self-employed and professionals so as to encourage these hard-to-tax individuals to voluntarily and timely comply with their tax obligations.
Angara said he will study carefully the various proposals on how to reform the tax regime for self-employed and professionals so it would ultimately benefit the small businesses.
Chua, however, said the DOF preferred that the eight percent GRT as an option so micro entrepreneurs would not be forced to pay the flat tax rate, especially if they incur losses.
The DOF official also addressed the concerns of some stakeholders that micro entrepreneurs enjoying the tax exemptions under the Barangay Micro Business Enterprise (BMBE) Law will be forced to pay the eight percent GRT.
Chua stressed that this part of the tax reform program is not necessarily harmful to micro, small, and medium enterprises (MSMEs).
“In our proposed reform, it is not necessarily bad. Because the average return in asset is five to 10 percent.
So that means, if the income is around P150,000 to P300,000 it will be exempted because the exemption will be in the tax reform, which is P250,000,” Chua said.
He said micro enterprises with an asset of P3 million would likely posts sales of P100,000 to P150,000.
Bureau of MSME Development Division Chief Alice Opeño said around 9,000 micro entrepreneurs were registered under the BMBE Law out of more than 800,000 micro enterprises.
Meanwhile, data from the Bureau of Internal Revenues showed that the government collected some P31.04 billion from over 517,668 self-employed and professionals in 2014.
Finance Secretary Carlos Dominguez III said the tax reform plan also seeks to end “decades of unjust taxation that polarized wealth rather than distributed it” in proposing to shift the tax burden from the lower 99 percent of the country’s population to its wealthiest one percent.
This reform package, popularly known as the Tax Reform for Acceleration and Inclusion Act (TRAIN), will also ensure the government a “healthy and recurrent revenue flow” to enable it to spend big on infrastructure, education, health and other social services, which are the major elements for attaining inclusive growth, Dominguez said.
He said tax reform is an indispensable component of the President’s broad economic strategy dubbed “DuterteNomics,” which aims to sustain a high growth rate of seven percent over the medium term and bring down the poverty incidence rate to 14 percent by 2022.
“By bringing our infrastructure and logistics backbone to comparable levels with our neighbors, and by aligning our tax rate to the regional average, we expect to achieve a high-income economy in a generation,” Dominguez said at the launching of the ‘1 with the 99’: A Forum on Tax Reform’ at the EDSA Shangrila Hotel in Mandaluyong City.
“This is the context within which I hope you will appreciate the comprehensive tax reform package that will be presented to you today.
It is a pro-poor package not only because of the mix of policies it holds but because of the consequences it will have for our people,” he added.
The forum, organized by the Department of Finance (DOF), aims to inform the public about, and generate more support for, the TRAIN, which is the first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP).
Dominguez said the forum was aptly dubbed ‘1 with the 99’ because it aims “to shift the tax burden from the lower 99 percent of the population to the wealthiest one percent.”
“The reform package will end decades of unjust taxation that polarized wealth rather than distributed it.
It will help us build a robust middle class to ensure stability and sustainability in our nation’s progress,” he said.
The proposed TRAIN, he said, will also end the country’s complex tax system that has become vulnerable to evasion and leakages by transforming it into a “simple, just and efficient” structure.
“Beyond that, the proposed reforms in our tax policy will help us reshape our economic growth so that it becomes more inclusive.
It will help us end the pattern of wealth concentration that characterized our growth so far,” Dominguez said.
The TRAIN, which was approved by an overwhelming majority of the House of Representatives as House Bill 5636 last May 31, will enable the Philippine economy to be as efficient and progressive as that of its neighbors’ by spurring growth and shifting its source from consumption to investments, creating jobs, increasing investment inflows, and bringing remote communities to the mainstream of domestic trade, Dominguez said.
He said the Duterte administration’s ambitious infrastructure program was dubbed “Build, Build, Build” to highlight “the urgency of addressing the congestion and inefficiency that threaten to choke our economic expansion.”
“Bad infra can only contribute to economic exclusion,” Dominguez said.
Dominguez reiterated his call for all Filipinos to take advantage of the “conjuncture of several beneficial trends” that has kept the economy on its high-growth path by supporting TRAIN and the other reform packages in the CTRP.
Such positive trends include a low-interest rate regime, a comparatively young workforce amidst an aging labor population in other parts of the globe, and low oil prices.
“This is the chance for us to break out from the cycle of moderate growth and achieve a fast-growing, dynamic and investment-driven economy.
This is a conjuncture that allows us to join the ranks of tiger economies.
We should not let this historic opportunity pass us,” he said. He said that if the tax reform fails at this time, the country will miss these economic opportunities “that may never converge again.”
“On the other hand, if we act promptly and decisively, we will have the means to bring the next generation of Filipinos to prosperity,” Dominguez said.
“The choices we face are stark,” he said. “The heroic option is clear. We have a historical task to undertake.
We will move forward with this because this is the right thing to do for our people.”
The proposed TRAIN or HB 5636 is a consolidation of the original tax reform bill—HB 4774—filed by Quirino Rep. Dakila Carlo Cua, and 54 other tax-related measures.
The bill aims to slash personal income tax rates, lower donor’s and estate taxes, and, at the same time, adjust the excise taxes on fuel and automobiles, broaden the value-added tax base and implement a tax on sugar-sweetened beverages among other measures.
Dominguez said the DOF will continue to hold dialogues with senators during the remaining weeks of the congressional break to explain to them the merits of the tax reform package and convince them to retain the original DOF-endorsed version outlined in Cua’s HB 4774.