Simplify paying taxes for all
The Philippine government needs more revenues to fund high-priority social programs and infrastructure projects, and to service the scheduled interest payments of its P12.8 trillion national debt as of end-June 2022. The interest payments alone stand at P582.3 billion or 11 percent of the proposed P5.3 trillion national budget for 2023.
There are various ways for government to get its much-needed revenues. These include improving tax administration and collection efficiency, imposing new taxes or increasing existing ones, restricting tax exemptions, selling some government assets, and privatizing select government-owned and controlled corporations.
Among these, improving tax administration and collection efficiency should be given priority before imposing new taxes, given that businesses and taxpayers are still recovering from the adverse effects of the pandemic.
This means encouraging greater tax compliance by expanding the taxpayer base, as in encouraging the self-employed and small/backyard businesses to pay taxes. Increasing tax collection efficiency can be realized mainly by simplifying procedures that many taxpayers find too complicated and challenging.
Current situation. The Philippines ranked 95th out of 190 countries in the World Bank’s Doing Business 2020 survey, with a total score of 62.8 out of 100, the fourth lowest among Asean countries. The survey found that it takes at least 171 hours per year to comply with three major taxes (corporate income tax, value-added tax (VAT)/sales tax, and labor taxes) in the Philippines.
The World Bank reported that the introduction and increased adoption of electronic filing systems has significantly reduced tax compliance hours globally. Countries in Europe and Central Asia began electronic tax filing initiatives in 2004, and by 2018, the average compliance time in the region was reduced from 473 to 225 hours per year, largely through e-filing and e-payment systems.Currently, the Philippines’ Bureau of Internal Revenue (BIR) has an existing system called the electronic filing and payment system (eFPS). However, only select large taxpayers are required to file through the eFPS, with due notification from the BIR, as of 2021. These include the top 20,000 private corporations, the top 5,000 individual taxpayers, corporations with paid-up capital stock of P10 million, and entities registered in special economic zones.
Although taxpayers who are not mandated to use the eFPS may voluntarily avail of the service, smaller taxpayers continue to bear the burden of complicated manual tax procedures. Small businesses and single proprietors have the same tax requirements as large taxpayers, but normally don’t have the resources to hire accountants to help them navigate the complex tax system. Hence, there is a need to simplify procedures, minimize paperwork, and increase access to an efficient electronic system.
Paying taxes made easier. Current BIR officials, led by Commissioner Lilia Guillermo, have recommended ways to simplify tax payments and make them more efficient. These include recognizing the need to expand access to eFPS by increasing budgetary support for high-quality and reliable IT infrastructure to create and expand a seamless process for e-filing and e-payment services. This is a timely initiative given the upcoming 2023 national budget deliberations in Congress. The BIR can also create a mobile app for easier tax payments.
Former BIR officials and private sector tax practitioners also suggested other ways for the BIR to ease tax payments, as follows: 1) Communicating the services offered to the public through a comprehensive campaign informing them of the availability of eFPS, how to voluntarily avail of the eFPS program, and the convenience of e-payment platforms (such as PESONet, Maya, GCash, etc.). 2) Maximizing social media to communicate new BIR initiatives to make tax compliance easier, while reaching out to the younger generation of income earners and entrepreneurs via platforms like Facebook, Twitter, TikTok, etc. 3) Further simplifying BIR forms. Existing BIR forms require various information that can be omitted, since details like civil status, date of birth, address, and prior payments are already contained in BIR records. Another way is to consolidate forms that ask for similar details, such as those for capital gains tax and documentary stamp tax. However, the deadline for both must be the same if the forms are to be consolidated.
Improving policy environment. Albay Rep. Joey Salceda, chair of the House committee on ways and means, has filed the Ease of Paying Taxes bill, which aims to simplify tax collection among small businesses by introducing a classification for medium-sized taxpayers. The bill also aims to remove the distinction between sales invoices and official receipts to ease the process of VAT exemptions.
The Legislative-Executive Development Advisory Council, chaired by the President, can also create a transparent monitoring system of the 2023 budget where average taxpayers can track how the government is spending the national budget. This can further encourage them to pay their taxes, knowing that their money is being spent properly.
Gary B. Teves served as finance secretary under the Arroyo administration.