DoF eyes changes in comprehensive tax reform program

The Department of Finance expects easier and higher tax collection in the long run from its refined proposals for the Package 4 of the Comprehensive Tax Reform Program. This deals with taxes on passive income, and financial instruments and transactions.

In a statement released Wednesday, the DoF said some adjustments under Package 4 of the CTRP are aimed at reducing the share of debt payments of the country in its gross domestic product, which will allow the government to provide more public services that have direct impact on Filipinos.

Proposed during the pandemic

“The idea here is that the CTRP was proposed during the pandemic when our debt-to-GDP ratio was approximately at 40 percent. Basically, during that time, the government had some fiscal space to accommodate some of the losses."

"But given that we’re already beyond the Covid where our debt-to-GDP ratio is around 60 percent, we have to be mindful of the impact of having revenue-eroding measures,” said DoF assistant secretary for fiscal policy and monitoring group Karlo Adriano.

Proposals presented to the Senate

The DoF's new proposals were recently presented to the Senate Committee on Ways and Means. It said a technical working group is being formed to further discuss them.

These proposals include interest income tax at 20 percent, and royalties which will be maintained in the near future before a reduction to 15 percent in 2028.

Dividend income tax will also be unchanged until 2027. The DoF said it will be recalibrated in the next year.

The DoF wants stock transaction tax to be lowered annually by 0.1 percent. The existing rate is 0.6 percent and the target is 0.1 percent in 2028.

Achieving revenue gain

“Just by shifting the implementation backward or forward, you can actually achieve a revenue gain. [It may be] minimal, but at least, it’s not going to be detrimental to our fiscal health," Senate Committee on Ways and Means chairperson Sherwin Gatchalian said.

The government expects to raise over P200 billion from these proposals, along with its proposals for value added tax on digital service providers, excise tax on single-use plastics, a rationalized mining fiscal regime and motor vehicle user's charge.

Unchanged taxes on several transactions will be imposed until 2027 and removed in 2028. These include sales, agreements to sell, memoranda of sales, deliveries, transfer of shares or certificates of stocks, and all bills of exchange or drafts.

On the other hand, no adjustments will be made on bank checks, drafts, certificates of deposit not bearing interest and life insurance policies and other instruments.

Taxes on PCSO winnings

This also applies to taxes on Philippine Charity Sweepstakes Office's tickets, prizes, and other winnings.

However, rates on policies of insurance upon property, and fidelity bonds will be gradually lowered each year by 1 percent. Currently, the rate is 12.5 percent and the target is 7.5 percent in 2028.

Lastly, taxes on mortgages, pledges, and deeds of trust will be maintained until 2027 and lowered to 0.3 percent in 2028.

The DoF said its proposals have gained support from the private sector, including the Money Market Association of the Philippines and the Trust Officers Association of the Philippines.

“We are one with the government in the harmonization of the passive income tax,” Adrian Ching, president of the Money Market Association of the Philippines, said.