THE business community is pushing for comprehensive tax reforms in the Philippines, saying the high cost of complying with tax regulations burdens micro, small, and medium enterprises (MSMEs), which provide employment to majority of Filipino workers.
The Philippines needs to simplify and update the tax system in order to realize inclusive growth and make MSMEs truly competitive in global markets, stressed Benedicta Du-Baladad, co-chair of the tax committee of the Philippine Chamber of Commerce and Industry (PCCI), in a recent presentation.
Du-Baladad pointed out that as of June 2015, among member countries of the Association of Southeast Asian Nations, the Philippines had the highest tax rate of 42.9 percent levied on firms.
This was followed by Malaysia at 40 percent, Vietnam at 39.4 percent, Indonesia at 29.7 percent, Thailand at 27.5 percent, Cambodia at 21 percent, Singapore at 18.4 percent, and Brunei Darussalam at 8.7 percent.
“Government must realize that every centavo spent on complying with taxes results in a loss of revenue collection equal to 30 percent of the amount spent,” said Du-Baladad, who is also chair of the tax committee of the Management Association of the Philippines.
The high cost of compliance is due mainly to the “defective tax system and poor tax administration” in the country, she continued.
The domestic tax environment is marked by complicated tax laws, an unfair tax structure, convoluted processes, and difficult compliance requirements.
The executive likewise decried the “one size fits all” policy, “unfriendly” tax administration, and the passing off of a big chunk of tax administration work to the private sector.
All these undermine ease of doing business in the country and hurt MSMEs, with their limited resources the most, said Du-Baladad. MSMEs comprised more than 99 percent of local businesses and had a 65 percent employment contribution, she added, citing 2012 data from the trade department.
For government to support a dynamic MSME sector, she proposes “taxpayer segmentation” instead of the “one size fits all” policy.
“The structure of the tax system, both policy and administration, must consider the specific profile and needs of its taxpayers,” Du-Baladad stated.
The executive said taxation should be simplified for MSMEs, and appealed to government to consider proposals such as presumptive income taxation like flat tax or gross income tax, as well as a withholding final value-added tax.
She also urged the introduction of “an even simpler version” of tax forms for MSMEs and allowing small businesses to do manual bookkeeping and manual filing and payment, even as big corporations must be instructed to go full e-filing and e-payment.
Summarizing the business sector’s recommendations, she said, “Simplify the tax structure and tax administration, streamline processes and maximize the use of advanced technology, and remove redundant, unnecessary, or useless reportorial requirements.” Philexport News and Features