Interview: Marivic Españo
In what ways can the tax system be prepared for the impending economic integration of ASEAN?
MARIVIC ESPAÑO: Rules should be defined as simply as possible and implemented uniformly to avoid confusion. There should also be moves to harmonise tax regulations across ASEAN and to define rules more precisely on taxing e-commerce. The existing Customs system should be reviewed to ensure its responsiveness to changes in the global market, and tax rates should be realigned with other countries in the region if needed. In relation to this, it would also be worthwhile for all ASEAN members to adopt international standards on auditing and financial reporting, so as to enhance the reliability of data on which business decisions are based.
What steps need to be taken to improve tax collection and facilitate the rate of compliance?
ESPAÑO: The strict imposition of penalties is the strongest incentive for tax compliance. It should also be made easier to pay tax by drawing up clearer and more consistent procedures. Even if taxpayers are intent on complying with the law, regulations are often too technical to be understood by most people, and the documentation requirements can be extremely tedious. In addition, consistent tax rulings on certain issues and transparency on the part of the Bureau of Internal Revenue (BIR) will also encourage taxpayer compliance.
How can the tax regime provide incentives to help businesses without compromising collection?
ESPAÑO: The primary domestic incentives-giving bodies, namely the Philippine Economic Zone Authority and the Board of Investments, have granted tax incentives in the form of income tax holidays, 5% gross income tax, VAT zero-rating, and tax- and duty-free importation of capital equipment, among others.
These incentives enable companies to expand their businesses, hire more employees and invest in capital equipment. There may be forgone taxes but even what can be collected would never have materialised at all without these incentives. The tax code also contains mechanisms by which companies can restructure their business operations through tax-free exchanges or tax-free mergers. These do not really exempt taxes but rather defer them. There are clear provisions in the law on entitlement about the refund of unutilised tax credits, including exemption from the improperly accumulated earnings tax based on the reasonable needs of a business. However, the whole process of evaluating and approving applications for refund can often send an entirely different signal to the taxpayers.
To what extent could full automation facilitate tax collection and the identification of evasion?
ESPAÑO: Automation has facilitated the gathering, processing and cross-checking of information, boosting the tax bureau’s ability to monitor compliance and to perform its audit functions. From the taxpayer’s perspective, automation facilitates compliance as it does away with long queues when filing monthly tax returns and it ensures secure approvals for routine transactions.
What can the government do to identify tax evasion more effectively and impose sanctions?
ESPAÑO: It would help if the government’s policies were more consistent. The BIR is putting extra pressure on ordinary taxpayers, but such effort should also be exerted to pursue those people who, perhaps because of their connections in society, are able to sidestep their responsibilities despite their ample resources.
Another challenge is the limited resources available to the tax bureau. It is an open secret that the Philippines is home to a vast underground economy and the BIR does not have the resources – human or technical – to conduct a thorough investigation and run after erring taxpayers. This in turn complicates the process of imposing sanctions as the evidence required to secure the conviction of tax evaders is largely compromised. Lastly, there are structural issues concerning the country’s slow justice system that must be resolved.
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