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DOF recommends for Duterte admin: Lower income tax, higher VAT, replace senior citizen discounts

The Department of Finance (DOF) said Thursday made recommendations for tax reforms as part of its transition documents for incoming President Rodrigo Duterte's next Finance Secretary Carlos "Sonny" Dominguez.

"As we transition towards a new administration, we pass on the elements of this study for the new leadership to consider taking forward. We hope the various areas covered by our initial work sparks public discourse on financing our future," the DOF said in a statement.

"In the past few years, the DOF engaged in a series of studies and consultations with academic experts as well as multilateral and bilateral institutions on our commitment to genuine tax reform," it added.

The finance department said its tax reform study is "done in a holistic manner and ideally at a time when electoral pressures do not threaten our long-term needs for short-term gains." 

The DOF made the following proposals in its Comprehensive Tax Reform Program (CTRP):

  • Lower individual and corporate income tax from 32 percent to 25 percent
  • Exempt 11 million wage earners from income tax
  • Fiscal incentives rationalization
  • Index excise taxes on gas, diesel, and other oil to inflation
  • Expand Value Added Tax (VAT) from 12 to 14 percent and remove exemptions replacing with direct subsidy
  • Tax administration reforms

The Finance department said that lowering individual (wage earners and self-employed professionals) income tax "may make our economy more competitive in light of ASEAN integration."

Decreasing corporate income tax within five years is feasible if twinned with the rationalization of 224 laws that make up our overly generous regime for fiscal incentives, DOF said.

Granting an all-in income tax exemption of P1 million to all wage earners will exempt 11 million out of 12 million wage earners from paying income tax, it added.

"This income tax reform will cost us P158 to P222 billion in the first year of implementation, while the rationalization of fiscal incentives will generate at least P5 billion," DOF noted.

Under the CTRP, the VAT increase of 14 percent and removal of all exemptions, except for those in agriculture, health, and education, will compensate for the forgone revenues from lowering the income tax.

Exemptions for persons-with-disabilities and senior citizens will be replaced with direct subsidies like conditional cash transfer.

Removing all zero-rating for VAT except direct exports is also ideal as this reform will generate P162 billion, the finance department said.

"Expanding the VAT base by removing exemptions will generate P80 billion, while increasing the VAT rate will generate P82 billion," it added.

Moreover, the oil excise tax, which will cover coal and other petroleum products, will be indexed to inflation. 

"To take advantage of the low oil price environment, it is appealing to explore indexing oil excise taxes to inflation, whose rates have not been adjusted since 1997," DOF said.

Under its tax administrative reforms, DOF said it will make tax evasion a predicate crime to money laundering, and repeal bank secrecy for Bureau of Internal Revenue (BIR).

"We believe the cornerstone of any genuine tax reform package is to remove bank secrecy for tax evaders and make tax evasion a predict crime to money laundering," DOF stressed.

The Finance department also recommended the removal of BIR and Bureau of Customs (BOC) from salary standardization and civil service protection to "attract staff competence and discourage corrupt practices." —JST, GMA News