The quote is rather apt to describe the current state of the Philippine economy, particularly with how Philippine tax laws have shaped it.

And of course, the tax law that immediately comes to mind is Republic Act (RA) 10963 or the “Tax Reform for Acceleration and Inclusion Act” (Train). The first phase of RA 10963, or Train 1, provided new reduced income tax rates for individuals, but also raised the excise taxes on fuel, vehicles and sugar-sweetened beverages, among other measures.

On Sept. 10, 2018, the House of Representatives approved on third and final reading House Bill (HB) 8083 — Train 2, or more popularly called the “Tax Reform for Attracting Better and High-quality Opportunities” (Trabaho) bill — which aims to reduce the corporate income tax rate from 30 percent to 20 percent, and proposes to remove fiscal tax incentives currently enjoyed by companies registered under RA 7915, or the Special Economic Zone Act of 1995, and other related laws.

For the most part, be it Train 1 or 2, the Train Law has received a bad reputation, and is perceived to be the indirect cause of soaring inflation during the latter part of 2018. The higher excise taxes on fuel (P7.00 per liter of gasoline and P2.50 per liter of diesel), coupled with the rising price of crude oil in the world market, could have been the contributing factors to soaring inflation, which peaked at 6.7 percent in September and October.

Train has also received flak for raising the prices of sugar-sweetened beverages and vehicles, with the imposition of higher excise taxes that took effect on Jan. 1, 2018.

With all these criticisms hurled against Train, the Department of Finance (DoF) and the Bureau of Internal Revenue (BIR) have always countered by saying all these higher taxes would only mean one thing: higher revenue collection.

Well, not really. During a hearing of the House Committee on Ways and Means, the BIR reported that it missed its 2018 collection target of P2.04 trillion by P82.04 billion (around 4 percent). The BIR, of course, was quick to note that its 2018 collection of P1.962 trillion improved on its 2017 collection of P1.78 trillion.

Without going into the actual collection figures, the BIR fell short on its 2018 collection for income tax, value-added tax (VAT) and excise tax.

It is disappointing to note that, on the crucial collection of higher excise taxes on fuel, sugar-sweetened beverages and vehicles, the BIR also missed on these targets. However, there was a surge in the collections of percentage tax, donors tax and other taxes, such as documentary stamp tax (DST), presumable caused by reforms introduced under Train.

As a result, House Minority Leader Danilo Suarez of the Third district of Quezon asked for the full implementation of RA 9335, or the “Lateral Attrition Act of 2005,” which provides for sanctions against officials and employees of the Internal Revenue and Customs bureaus who missed their collection targets.

Ron Arriesgado is a partner of the LMA Law Offices in Makati City. He has managed and resolved taxation issues of local and multinational entities and service industries; resolved various tax assessment cases issued by the Bureau of Internal Revenue; and provided clients with the proper tax strategies to cancel or substantially lower clients’ tax assessments, among others. He is a member of the Integrated Bar of the Philippines.

Manila Times Source

ATTY. RON ARRIESGADO

Partner LMA LAW