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Philippines: Government urged to tighten tax watch on private sector
MANILA, Philippines — The government should tighten its tax watch on the private sector next year to make sure it collects revenues required to carry out recovery measures, economists said.
Ateneo de Manila University economics professor Leonardo Lanzona said the government should use the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to force investors to create jobs and expand operations.
“The CREATE Act intends to reduce corporate taxes to attract investments. This reduction must not, however, be given automatically. Instead, it should be conditional on achieving certain goals that the recovery requires, such as job creation and technology transfer,” Lanzona said in an email to The STAR.
Under the CREATE Act, the corporate income tax (CIT) rate was trimmed to 25 from 30 percent – the highest among Southeast Asian economies – to encourage investments in priority areas. On the other hand, firms earning below P5 million a year are taxed just 20 percent.
However, the government stands to lose at least P478.5 billion worth of revenues due to the CIT reduction. The foregone income will amount to P138.2 billion this year, P118.8 billion in 2022, P115 billion in 2023 and P106.5 billion in 2024.
IBON Foundation executive director Jose Enrique Africa, for his part, said the government made an “irrational” move in giving out tax breaks and cuts to private firms at a time when it demands additional resources for state spending.
“Not tapping accumulated wealth and giving tax breaks to corporations when the country needs so much public spending and investment is irrational,” Africa said.
As an alternative, Africa said that legislators approve the proposal pending in Congress slapping a wealth tax on billionaires to increase the government’s revenues next year.
Under House Bill 10253, billionaires will be asked to pay a tax of one percent for wealth beyond P1 billion; two percent for wealth over P2 billion; and three percent for wealth over P3 billion. In estimates computed by IBON, the government stands to generate nearly P237 billion a year just by covering the 50 richest Filipinos.
The Department of Finance, for its part, warned that investors may be provoked to avoid taxes and, worse, leave the Philippines due to a tax regime that punishes wealth. It added the government will only generate an additional P56.7 billion should it charge a wealth tax on billionaires.
“Fiscal sustainability is critical, but revenues should be raised according to the country’s concrete social and economic conditions; as such, tax policies should be designed with their distributional implications top-of-mind,” Africa said.
For next year, the government plans to collect P3.3 trillion in revenues in an effort to bring down the budget deficit to 7.7 percent of the economy, from a 2021 program of 8.2 percent.
Source: https://www.philstar.com/business/2021/12/20/2148952/government-urged-tighten-tax-watch-private-sector