MANILA - The Department of Finance has thrown its support to a Bureau of Internal Revenue regulation that requires the disclosure of all payees of income payments subject to withholding tax despite strong opposition from the business community.
The banking and capital markets sector has sought the abolition of the new regulations that require the submission of vital information of their cleints which include tax identification numbers, complete names, income amount and tax withheld.
The business community is also against the itemized listing of all payees as the normal practice among withholding agents is to lump various income payments and taxes of employees and payees into a single amount and account.
Finance Secretary Cesar Purisima said while he understands the concerns raised by the local banking community, he believes that the new requirements imposed by the BIR were necessary to track down tax evaders.
“The BIR has every right to get information. How can the BIR verify if a certain individual or company is paying the right taxes,” Purisima said.
“They cited the Bank Secrecy Law in opposing the new requirements, but that’s a different thing,” Purisima said.
Nevertheless, the government is open to discussing matters with the business community to avoid further misunderstandings, Purisima said.
BIR commissioner Kim Henares said the new rule was aimed at ensuring a more accurate and efficient manner of monitoring and capturing information on all income payments made by employers.
“You need to list down alphabetically the people/entities from which you withhold. There is no person/entities called “various.” They have been violating the law and we are correcting this,” Henares said.
“This is nothing new. The requirement for an alpha list has been there since 1998, the only difference now is you have to identify the income recipient with specificity and not defeat the law by lumping it in one account ‘various’,” she pointed out.
“If it is with regard to bank deposits (as in savings account, current account and time deposits) and government securities, we are only requiring them to identify the depositor /investor if they are claiming an exemption as they have to prove they are entitled to the exemption. Otherwise, they are subject to the regular tax rate,” Henares said.
Failure to comply with the new requirements will result in the disallowance of deductible expense payments.
The financial markets industry said the new requirements discourage portfolio inflows and could pose a threat to the country’s growth trajectory.
They said foreign investors have began pulling out of the Philippine market and opted to go to markets which offer attractive investment returns and investor-friendly policies.
Philippine Stock Exchange president Hans B. Sicat said the issue of capital flight has become a worrisome issue as foreign trades account for almost 51 percent of total exchange transactions.
“Clearly, RR 1-2014 disregards basic laws and guidelines that were established to protect investors. We are starting to experience the negative effect of this regulation on the stock market and obviously, this setback is not something we can afford to have at this time when the Philippine equities market is generating so much interest from investors, especially foreign funds,” Sicat said.