IMF against Senate bid to lower income tax

The International Monetary Fund (IMF) has effectively rejected proposals in Congress to lower individual income-tax payments through a bill updating the tax schedules, as the multilateral lender is requiring a counterpart measure that would offset the revenue losses.

In a statement after its representatives recently visited the country, the IMF said that it instead encourages a comprehensive tax-reform package that is “net-revenue enhancing.”
“To support a higher level

of budgetary spending on infrastructure and social needs over the medium term, additional fiscal revenue would need to be raised,” the IMF said.

It added that it is urging the government to avoid any tax package that would entail a net revenue loss like the recommended lowering of personal tax rates.

Should the measure be implemented, a concomitant rationalization of exemptions or incentives and a rise in fuel excise taxes should accompany it, the IMF said.

A higher excise tax on fuel, however, would be an unpopular policy move for the Aquino administration, which is building up support for its candidates in the presidential elections next year.

The IMF said it also supports the efforts of the Department of Finance (DOF) to allow the Bureau of Internal Revenue (BIR) access to bank-deposit information and make tax evasion a predicate crime to improve the efficiency and equity of revenue collection.

An IMF consultation mission led by Chikahisa Sumi visited Manila last May 14 to 26. The mission met with the governor of the Bangko Sentral ng Pilipinas, the secretaries of Finance, Budget and Management, and the National Economic and Development Authority, as well as senior government officials, private-sector representatives, and the financial community in Manila and Cebu.

Sumi, at the conclusion of the IMF visit, said the outlook for the Philippines economy remained favorable despite uneven and generally weaker global growth prospects.

He projected the country’s gross domestic product (GDP) to grow by 6.7 percent this year, as lower commodity prices lift household consumption and improved budget execution raises public spending.

A Senate bill, filed by Sen. Juan Edgardo “Sonny” Angara, seeks to update the income-tax schedule to reduce tax payments for the poor and middle-class brackets or those earning less than P1 million a year.

Angara said with the administration’s support, the bill has a window for enactment  “toward the end of this year or the start of next year.” But with the IMF position now, the Aquino administration will likely be lukewarm in its support for the bill.

The Senate is hoping to lower individual tax payments before the end of Mr. Aquino’s term amid criticisms that services rendered by the government were not commensurate with the increase in tax collections.

Under Angara’s proposal, the lowest tax bracket would be those earning P20,000 a year  and below who will pay a 10-percent tax, from the current P10,000 and below who are assessed a 5-percent tax.

The top bracket under the bill would be those with an income of P1 million or more paying a 25-percent tax, from the current P500,000 and above charged with a 32-percent tax.

Angara, chairman of the Sente ways and means committee, said he would continue to push for the bill and a counterpart proposal mandating the conduct of cost-benefit analysis on investment schemes to remove excessive incentives targets to offset revenue losses from the income tax-rationalization bill.

He said the review of the investment schemes would be contained in the proposed Tax Incentives Management and Transparency Act (Timta).

Under the amendment, the National Economic Development Authority (Neda) is mandated to conduct an annual cost-benefit analysis on the investment incentives to determine the impact of tax incentives on the economy.

“We are staying true to the essence of the bill,which is to provide a solution for the lack of information and data on fiscal incentives and what it reciprocates to the economy. With Neda’s cost-benefit analysis, it will allow policymakers to make better decisions, going forward, in crafting or revising laws, in overseeing the implementation of existing investment-related laws, and in managing the nation’s finances,” Angara, who is also the sponsor of the Timta bill, said.

All heads of investment promotion agencies (IPAs) must submit to the Neda investment-related data that would include, but would not be not limited to, the list of registered business entities, investment projects, investment cost, actual employment and export earnings, while for tax incentives data, the Department of Finance (DOF) will furnish the Nedfs with a copy of the reports submitted by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).

As for the monitoring of tax incentives information, Angara proposed an amendment mandating the DOF to submit to the Department of Budget and Management (DBM) the actual amount of tax incentives that registered business entities availed themselves of, estimate claims of tax incentives immediately preceding the current year, programmed tax incentives for the current year, and the projected tax incentives for the following year.

For transparency purposes, these data and information would be reflected by the DBM in the annual Budget of Expenditures and Sources of Financing (BESF), which shall be known as the Tax Incentives Information (TII) section.

Angara said the TII will be limited to the aggregate data related to incentives that registered business entities availed themselves of, based on the submissions of the DOF and the concerned IPAs, categorized by sector, by IPA and type of incentive.

“It must be stressed that the proposed Timta does not, in any way, diminish or limit the amount of incentives that IPAs may grant, pursuant to their charters and existing laws, or prevent, deter or delay the promotion and regulation of investments, processing of applications of registrations and evaluation of entitlement of incentives by IPAs,” Angara said.

“Fiscal incentives cannot be evaluated in a vacuum, given the many benefits such as jobs and rural development that come along with these incentives. We need to better monitor the fiscal incentives we give to ensure that the revenue we forego actually leads to more investments and high-income jobs,” Angara said. Luis Leoncio