Why Philippines needs to upgrade tax system

ABS-CBN News

Posted at Dec 13 2014 02:06 PM | Updated as of Dec 13 2014 10:06 PM

MANILA – The country's tax rate is not only outdated, it is also one of the highest in the ASEAN, said Raymond Abrea, chief executive and founder of the tax consultancy firm Abrea Consulting Group.

Abrea is backing tax reform bills sponsored by Senator Bam Aquino and Senator Sonny Angara, which are being discussed by the Senate ways and means committee.

“It surprised me that it took us more than two decades for us to realize that we have outdated tax rates. It was never changed since then,” Abrea told ANC’s “On The Money,” noting that the only revision made in 20 years was the increase on personal exemption.

In the Philippines, those who earn P500,000 are taxed 32 percent, compared to 20 percent in Vietnam, 20 percent in Cambodia, 12 percent in Laos, and 11 percent in Malaysia.

Abrea said the greater majority of taxpayers in the Philippines come from the lower bracket of earners.

Citing a World Bank report, he said 80 percent of tax collections from compensation is on the highest bracket of P250,000 and above, which is composed of only 20 percent of those being taxed.

“We can radically lower the rate and just expand it so that an ordinary employee would not have been taxed the same way they are being taxed right now. At P30,000, you are already taxed the highest rate and I don’t think that’s acceptable given the price of goods and everything else,” said Abrea.

Abrea believes that the proposed tax reforms will cost the government P10 billion in revenue loss, and not P40 billion as government claims.

“In 2013, employees paid P200 billion in taxes. The government claims that lowering the tax brackets will see a revenue loss of P40 billion. But that would mean that 20 percent of employees will not be taxed under the proposal,” he said.

He added that there will be increased collection from a broadening of the taxpayer base or voluntary compliance.

“The thing with collecting taxes is that it has been negative. What we want is that there will be sufficient revenue, you cannot be taxed that cannot be sufficient to pay salaries of our government employees and infrastructure, and the same time, it should be simple in a way that anyone can comply,” said Abrea.

Aside from adjusting the income tax rate, bills to exempt marginal earners and startup businesses have also been filed and are being discussed by lawmakers.