Interview: Carlos G Dominguez III
How can the tax system be reformed to boost revenue and reduce informal economic activity?
CARLOS G DOMINGUEZ III: We are undertaking a comprehensive tax reform to develop a system that is fairer, simpler and more efficient for everyone. Characterised by low rates and a broad base, our reformed tax system will promote investment, job creation and poverty reduction. Our overall aim is to raise the revenue needed to increase investment in our people and infrastructure, and to correct the issues in the current system that have led to inequity, inefficiency and complexity.
Revenue can be raised through tax policy, tax administration and budget reform. Our target is to raise the equivalent of approximately 1.5% of GDP from tax administration reform and an additional 2% of GDP from tax policy reform, increasing efficiencies and compliance in the former and adjusting for inflation and addressing leakages in the latter. Judicious spending will spur job growth and improve our overall business environment, as will making it easier for businesses to comply with our tax system. Together, these moves will help reduce informal economic activity.
What efforts will be made to improve the efficiency of tax collection and expand the tax base?
DOMINGUEZ: We are relaxing the bank secrecy law for fraud cases and including tax evasion as a predicate crime to money laundering. This will give us a greater ability to collect taxes that are due to the state.
In addition, we are expanding the large taxpayers service from the current 2320 taxpayers to 3000. These taxpayers represent 70% of total collections for the Bureau of Internal Revenue (BIR). We are also creating a medium taxpayers service, with medium taxpayers district offices to be located in regional offices.
Moreover, the BIR will employ profiling and benchmarking to address uncollected VAT. We will do this by industry so we can check which are below the bar and should be prioritised for audit. To facilitate tax compliance, meanwhile, the BIR has been tasked with drastically simplifying our tax forms; both the number of pages and fields will be reduced.
How can automation and simplified Customs procedures improve the business environment?
DOMINGUEZ: The Philippines has scored major improvements in various global indices in recent years, placing 99th out of a total of 189 economies for ease of doing business in the World Bank’s “Doing Business 2017” report and 47th of 140 countries in the World Economic Forum’s global competitiveness index 2015-16 rankings. Despite this, further reforms are still needed to improve ease of doing business, particularly for our neighbours in the ASEAN Economic Community.
Non-tariff barriers are the biggest obstacle to entry into the Philippine market. The world’s value chain is now global, and for the Philippines to enter that chain, we must provide seamless cross-border trade and linkages. The Department of Finance’s Anti-Red Tape Team is working with the trade regulatory agencies coordinated under the National Competitiveness Council to implement the Inter-Agency Business Process Interoperability (IABPI) initiative. The IABPI’s objective is to simplify the paperwork required to conduct import and export activity by streamlining processes and converging systems. This will go a long way towards facilitating increased regional trade links and the entry or expansion of businesses.
We are also addressing systemic inefficiency and irregularity head-on to make our country more business-friendly. A computerised tax payment and assessment system for the BIR and a paperless processing system for the Bureau of Customs (BoC) will reduce compliance costs and limit people-to-people contact and the opportunity for corrupt practices. Updates to the BoC’s IT environment will introduce controls and standards as per global best practices, which will help eliminate discretion on the part of Customs employees.
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