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DOF warns of revenue loss equivalent to 1.5% of GDP if tax reform bill is passed

Even as the Department of Finance (DOF) admitted the need to review the Philippines tax system, it warned lawmakers on Wednesday that reducing the individual income tax rates may cause the government to lose revenues totaling as much as 1.5 percent of the countrys Gross Domestic Product (GDP).

DOF Undersecretary Jeremias Paul urged members of the House Ways and Means committee to adopt a holistic approach to studying the proposals to overhaul the income tax system in order to pass legislation that will balance the governments fiscal needs and the taxpayers welfare.

We already see the writing on the wall that both Houses of Congress are dead-set on adjusting income tax rates. Ang pakiusap lang namin is for lawmakers to look at the proposals from a holistic approach. Based on our estimatesdepende sa version [ng bill lowering income tax rates]the revenue hole [this will cause] will be from a low of 0.3 percent of the GDP to as high as 1.5 percent, he said at the panel hearing.

At the sidelines of the deliberation, Paul told reporters that the government stands to lose at least P30 billion if a bill lowering income tax rates is passed.

While Congress works for the passage of the tax reform bill, it should also consider legislating measures to offset the revenue that will be lost from reducing income taxes, the DOF official said.

We need to have a compensating measure. It has to be revenue-neutral. Yun lang naman ang request namin eh, Paul said.

Ways and Means committee chair Rep. Romero Miro Quimbo earlier said they are working on legislating revenue-generating measures at the same time as the tax reform bill.

The House panel is considering the passage of bills imposing excise taxes on carbonated drinks and mining activities to help the government recover the revenue lost due to reduced income tax collection.

Unfair tax system

Despite the DOFs warning about the consequences of reducing income tax rates, Quimbo said it is about time for Congress to overhaul what he described as an unfair and inequitable tax system.

The current tax system is unfair because todays wages have been outpaced by the tax rates… The burden of paying for 85 percent of our total individual income tax collection has fallen on ordinary workers who have no choice but to pay taxes because its withheld at source, he said.

Under the existing system of progressive taxation, individuals with a taxable income of at least P500,000 annually are considered to be in the top tax bracket and are taxed 32 percent.

The Philippines has the highest income tax rate among Southeast Asian countries at 32 percent.

For his part, Pasig City Rep. Roman Romulo said overhauling the tax system has become necessary because ordinary workers deserve to have more control over their income.

Panahon na para tingnan naman ng DOF yung other side, which is yung [kapakanan] ng taxpayers. kapag naman binawasan ang income tax rate, tataas ang spending power ng mga mamamayan. Mababawi pa rin ng gobyerno yung nawalang revenue mula sa income tax collection, he said.

On Monday, leaders of the House of Representatives and Senate agreed to fast-track deliberations on a comprehensive tax reform bill after including it in the list of priority measures it intends to pass as soon as possible.

Quimbo said Congress targets the passage of the law reducing income tax rates by next year. BM, GMA News

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