Interview: Marivic Españo
How is the tax system being simplified to enhance the business environment?
MARIVIC ESPAÑO: A tax system that provides lower rates, a simpler structure, and uniform tax treatment for similar incomes and transactions, in general, promotes transparency, ease of compliance and consistency. Businesses can therefore focus on growing their companies and making long-term plans without worrying about changes in interpretations or compliance rules. This is precisely the vision of the new government. Proposed tax reforms are intended to be legislated within 2017 and implemented by 2018.
The filed bill for package one of the proposal contains the simplification and reduction of taxes on employees. The compliance requirement for employers will consequently be simplified, while the lower taxes will reduce pressure for salary increases. A simplified gross income taxation is being introduced for small businesses. Estate and donors’ tax rates will be unified to a lower flat rate with minimum exclusions. The value-added tax will be streamlined by expanding the base and reducing exemptions and zero-ratings.
Package two will target a reduction in the corporate income tax rate. Taxes on capital income will decrease with significant reduction in rate differentiation. Transfer pricing regulations were laid out as early as 2013, providing guidance to related parties on how to document their transactions to comply with the arm’s length standard and avoid transfer pricing adjustments.
In what ways can the Bureau of Internal Revenue meet the quality expectations of taxpayers and deliver improved services?
ESPAÑO: The bureau has outlined a 26-point priority programme, half of which is geared towards improving taxpayer satisfaction. Revenue issuances will be reviewed to ease doing business and reduce hindrances in business transactions. Tax forms will be simplified. Electronic facilities will be optimised to enhance frontline services and facilitate taxpayer transactions. There are already circulars mandating simplified processes and reduced compliance requirements for registration, issuance of clearances and accreditations. Certain functions have been devolved from the national office to the district levels to facilitate approvals. Senior officials have relayed their openness to more liberal implementation of the compromise settlement programme to avoid prolonged discussions in settling tax deficiencies.
Acknowledging the need to beef up its human resource complement to deliver the expectations, the Commissioner also announced that they will embark on massive recruitment. At the same time, they will advocate for exemption of the bureau from salary standardisation in order to energise the organisation.
How can tax guidelines accommodate the rise of digital transactions and internet commerce?
ESPAÑO: The bureau has issued guidelines on compliance requirements for the parties involved in online transactions. The regulations clearly define taxable income and transactions, as well as taxable entities, including their compliance requirements. In a way, participants are able to correctly assume their tax obligation and avoid instances of double taxation. The guidelines, however, are not clear when parties are in different jurisdictions. These transactions have to fall under the most applicable rules currently in place.
The foremost concern of the government is to address potential tax loss arising from unmonitored online transactions that are generating Philippine-sourced income but are currently not being subjected to taxes. While the Philippines should be designing a tax system related to internet transactions in order to capture revenues, the government should also be open to cooperation to ensure that such a system can be harmonised with the taxation laws of internet transactions in other jurisdictions.
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