THE House committee on ways and means approved Tuesday, August 27, a bill seeking to simplify passive income and financial intermediary taxes.
House Bill 307, or the proposed "Passive Income and Financial Intermediary Taxation Act (Pifita)" aims to make passive income and financial intermediary taxes simpler, fairer, more efficient, and more regionally competitive.
It is the fourth package of the comprehensive tax reform program (CTRP) of the Duterte administration.
Among the proposals of the Pifita is the decrease in tax rates on interest income from regular savings and short term deposits from the current 20 percent to 15 percent — 15 percent being the lowest tax on labor income and within the range relative to other states in the region.
Tax rates on interest income from foreign currency deposits and long-term deposits shall both likewise dip to 15 percent. Dividend income shall be fixed at 15 percent except for intercorporate bonds.
Tax rates on proceeds from the sale of listed shares shall be lowered by 0.1 percentage point each year beginning 2020 until it goes down to 0.1 percent in 2025 from the current 0.6 percent.
This is to decrease tax on listed stocks and be regionally competitive. Tax rates from sale of unlisted shares of stock shall remain the same at 15 percent. Initial tax offering (IPO) tax shall be removed altogether to reduce friction cost.
Tax rates on proceeds from the sale of listed debt instruments shall be at 0.1 percent to equalize tax of listed debt and equity instruments. Tax rates on gains from sale of unlisted debt instruments shall be fixed at 15 percent.
Income from interest, commissions, and discounts from lending activities as well as income from financial leasing and other income shall be taxed five percent to harmonize gross receipts tax. Dividends and equity shares in net income of subsidiaries shall remain exempt from tax.
Tax rates on life and health insurance will remain at two percent premium. For HMO, pension, and pre-need insurance, the tax rates shall be slashed to two percent premium tax from 12 percent value-added tax (VAT).
The principle behind both is that the tax for insurance shall be the same as that used for savings to level the playing field and simplify compliance.
The 12 percent VAT for non-life shall be retained since non-life insurance is a consumption product by nature. Crop insurance shall remain exempt from tax.
The Pifita further proposes the reform of documentary stamp taxes (DSTs). Under Pifita, all DSTs shall be lower and expressed in ad valorem in general. This shall decrease friction cost of financial instruments.
The DST reform seeks to express all DST rates in ad valorem; equate DST on debt and equity; unify all non-life insurance rates; remove DST on domestic money transfers to support financial inclusion; and remove "nuisance" provisions with low revenue take.
A similar bill was approved by the House on third reading in the 17th Congress. The Senate, however, did not introduce such measure. (Ryniel Berlanga/SunStar Philippines with PR)