Intricate tax laws cost gov't P163M in lost revenue

Intricate tax rules and ingenius tax payers have cost the government P163 billion in lost revenues from 2000 to 2004, Sen. Ralph Recto said on Sunday. Much of the lost revenue should have been collected from businessmen and professionals, as those with fixed salaries have been better taxpayers. Recto, chairman of the Senate ways and means comitteed, made the observation based on study submitted to thim by the National Tax Research Center. Thus Recto said he would push for a flat tax on income. “A simplified tax system is the best way to encourage tax compliance," he said. “By restructuring the income tax system, we bring relief to those who needed them most," Recto said. One proposals he is considering it to exempt from tax the first P125,000 of an individual's yearly income. For working couples that amounts to P250,000. Beyond that amount, the individual would be charged a flat tax rate. The Philippines, at present, has seven income tax brackets, with the highest at 32 percent. “We have a tax code which has many nooks and crannies where anyone who is running from the BIR can hide," Recto said. Recto said "The Da Vince Code is easier to unlock than our complex system of tax laws." The government manages to collect only 32 percent of the annual potential collection from individual taxes, Recto said. “Sixty-eight centavos for every individual income tax peso escapes the net," he added. Recto noted that those who earn less seem to be the better taxpayers. “The record shows that fixed-income earners, like factory hands, call center employees, and government employees are better taxpayers than traders and practicing professionals," he said. Honesty is not necessarily the reason for this. Recto noted two other reasons:

• Taxes of salaried workers are withheld at the source.
• Businessmen and professionals are allowed to deduct business expenses which are usually overstated.

“For a worker, a cellcard is a personal expense. For a businessman, it can be a tax-deductible expense," Recto explained. The NTRC study showed that “compensation income earners" accounted for 87 percent of the total individual income tax payments from 2000 to 2004. The estimated individual income tax gap from 2000 to 2004 averaged P32.6 billion annually, according to the National Tax Research Center (NTRC) in a report submitted to Recto's committee. Much of the lost revenue, or P25.43 million, can be attributed to businessmen, professionals, and the self-employed. The remaining P7.17 billion should have been collected from compensation workers. Individual income tax payments, however, make up less than a fourth of total BIR collections. In 2004, it accounted for P100 billion out of total BIR take of P468 billion. Businessmen and professionals, on the other hand, made up the rest. Their 13 percent share, however, has been described by the NTRC as “insignificant." - GMANews.TV