September 14, 2019
PRESIDENT Rodrigo ’s pronouncement of taxing corporates based on their gross income has its pros and cons, but what is important is how this would be done, analysts told The Manila Times on Friday.
According to Rizal Commercial Banking Corp. (RCBC) economist Michael Ricafort, income taxes computed against firms’ gross profit could likely boost the government’s tax revenue, as it improves tax collections and plug leakages.
“Computing corporate taxes to be paid using [the] gross income as base is less prone to tax management/allowable deductions/any other possible revenue leakages [from the point of view of the government]….” Ricaford said.
Gross-income-based corporate taxes, he added, “could be more transparent and fair, as well as less prone to any manipulation or even possible abuse, since there is less leeway/flexibility for any reduction in the tax base, such as on various expense items, depreciation and other deductions whenever net income is used as tax base.”
Companies in the Philippines are currently taxed based on their net income.
Ricafort pointed out, however, that using the gross income as the base could be a disadvantage to businesses, as they have to pay more taxes.
He said that, under that tax regime, there was “little leeway for them for tax management/acceptable tax avoidance measures allowed under the law.”
The RCBC economist reminded policymakers to consider international practices in tweaking the country’s tax system.
For his part, Union Bank of the Philippine chief economist Ruben Carlo Asuncion said a tax policy must be fair, regardless of the method being used by the government to collect it.
“Economies whose institutions are perceived to be strong, transparent and just are the economies that are thriving and growing [or have thrived and grown]. Thus, for me, the current set up needs to be tweaked, but implementation is…key,” he added.
Meanwhile, Finance Secretary Carlos Dominguez 3rd said there was a proposal to create a group that would study the President pronouncement.
“There is a recommendation to form a group headed by the Executive Secretary, and participated in by the Department of Justice and the Development Budget Coordinating Committee to study this issue,” he told reporters in a message.
In a speech on Wednesday night, Duterte said he wanted to tax companies based on gross income to curb corruption at the Bureau of Internal Revenue.
He claimed that the method — being used by Hong Kong, Singapore and Brunei Darussalam — “would remove 70 percent of the corruption.”
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