THE current rates of interest income taxes are skewed towards the rich and discriminate against low-income depositors, Finance Secretary Carlos Dominguez III said.
The Department of Finance (DOF) is looking at how best to correct the disparity in interest income taxes for peso deposits between rich and low-income depositors and harmonize current rates for dollar deposits.
Dominguez told legislators at a recent public hearing that they are proposing to harmonize all capital income taxes regardless of currency, maturity and type towards 10 percent.
“This way, the poor pay less on the interest income and the rich pay more,” he said during a recent hearing of the House of Representatives’ committee on ways and means on the DOF-proposed tax reforms.
With the proposal, tax on interest income from peso deposits will be reduced to some 10 percent.
Domingo said that “for the capital income tax reform packages, we will lose around a billion pesos but gain, again, with the positive impact of simplicity, equity and efficiency.”
Earlier, the finance secretary noted that depositors with minimal peso investments are normally taxed as high as 20 percent while rich depositors parking their millions of pesos in banks for much longer get to do it tax-free, depending on how long they keep their money in the banking system.
“Small depositors are burdened with high tax rates because they save less and cannot keep their money in banks for a long time, while rich depositors, who park their money in banks because they do not have an immediate need for it, are not taxed. Is that fair?,” Domiguez said.
The interest income from peso deposits in accounts such as savings deposits, time deposits, special deposit accounts, and common or individual trust funds with maturity periods of less than three years are taxed 20 percent.
Deposits for three years to less than four years are taxed 12 percent, while those kept for four years to less than five years are taxed five percent.
For deposits maintained in banks for five years or more, which mostly only the rich can afford to do, the tax is zero.
Foreign currency deposits and deposit substitutes are taxed 7.5 percent while interest income from bonds gets a 20 percent tax.
Dominguez said correcting the tax rate disparities in interest income deposits form part of the tax policy reform program that the DOF is proposing to raise revenues and broaden the tax base.
Consultations
DOF has been conducting consultations with various sectors to fine-tune its comprehensive tax reform plan prior to its final submission to the Congress.
Dominguez III told legislators at a House of Representatives hearing that this tax plan, which “balances policy trade-offs,” is part of the Duterte administration’s broader reform program for inclusive growth comprising seven components.
These seven components are: 1) reforming tax administration at the Bureaus of Internal Revenue (BIR) and of Customs (BOC); 2) improving governance and reforming the budget; 3) leveling the playing field by enhancing competition; 4) simplifying business regulations; 5) securing property rights; 6) promoting food security, and; 7) addressing traffic, crime, and vice.
“From now until the end of the month, we are conducting a series of consultations to further refine this proposal,” Dominguez said at a meeting of the House committee on ways and means chaired by Representative Dakila Carlo Cua.
The DOF has consulted former finance secretaries, legislators, economists, research and advocacy groups to help finalize the tax reform plan. (ASP)