Being debated in the plenary of the House of Representatives is the first package of the Comprehensive Tax Reform Program (CTRP), House Bill No. 5636, the substitute bill of House Bill No. 4774 or the Tax Reform for Acceleration and Inclusion Act (TRAIN). The tax reform aims to shift the tax burden to the rich and subsidize the poor by putting more taxes on consumption rather than on income.
I have previously expressed my support to the bill in theory. I, however, have reservations with respect to its practical aspects and implementation.
The Department of Finance pushes for the passage of the original bill to reduce budget deficit and to generate enough revenue for infrastructure and social services. I think that the original features of this bill are quite ambitious, while the provisions of the substitute bill are more feasible.
The substitute bill basically aims to lower personal income taxes of the compensation earners, expand the value-added tax (VAT) base, and adjust the excise tax rates for fuel, automobiles, and sugar, among other measures. On the first year of its implementation, the government is estimated to earn P82.3 billion in revenue, which is 47 percent lower than the P157.2 billion as estimated from HB 4774.
Corollary to the lowering of personal and corporate income taxes, the government would be compensating for its loss by raising excise tax rates and introducing new “consumption taxes.” It has always been my stand that for the first two years of the CTRP’s implementation, there should be a “revenue neutral” status quo, wherein the government should only spend what it would earn.
The weakness of the system lies in the tax collection inefficiency of the Bureau of Internal Revenue and the Bureau of Customs, which are responsible for generating 90 percent of the government’s revenues. Furthermore, we overlook the existing laws that once implemented effectively, could possibly address the problems in our tax system. As an example, we have the Republic Act 9335 or the Lateral Attrition Law, which has been there since 2005 but has not been fully implemented. This law aims to provide penalties and rewards for the officials of the BIR and the BoC based on their performance.
Crafting a new measure as a superior approach to the problem cannot solve the problem as long as inefficiency and corruption in tax administration persist. Failure to address these issues in tax administration would only hold the proposed tax reform vulnerable, no matter how attractive its features are. Therefore, before pushing for new tax policies, we must fill the gaps of our existing tax system.