Possible Tax Amnesty to be Implemented in the Philippines for Increased Tax Revenue
Tax evasion is a real challenge for any government. Tax collecting agencies across the world have policies tailored specifically for easier and more efficient tax collection from its constituents. While there are best practices from more developed economies, the Philippines focused on the cases of its neighbour economies to design a policy and system to make tax recovery and collection more effective.
Indonesia’s Tax Amnesty Policy has seen over $330Bln worth of assets declared by over 745,000 taxpayers thru a tax amnesty scheme put in place by the country’s Finance minister Sri Mulyani Indrawati with the support of the President Joko Widodo. The Finance Minister Indrawati’s tax reform team targets to increase the tax ratio to 15 percent of GDP in 2020. The current tax ratio is about 11 percent as of March 2017. This increase in tax revenue, according to President Widodo, is the key to boosting infrastructure spending and growth.
The Philippines intends to follow this promising example from Indonesia by introducing its own version of Tax Reform. Department of Finance (DOF) Chief Carlos Dominguez said that the Philippine government is designing its own version of tax amnesty which is intended to match the massive efforts of the Indonesian government to address this issue. The DOF Chief recognized that, despite having similar fundamentals to Indonesia’s efforts, the tax reform for the Philippines would have to take a different approach due to the different case of tax remittance and payments in the country. While Indonesian taxpayers had undeclared assets outside their country, the Philippine taxpayers, on the other hand, didn’t have the appropriate avenues to settle their taxes within the country. The tax amnesty, according to the Chief, will address collection for four types of taxes — property tax, estate taxes, regular taxes and tax cases.
The tax amnesty should gather revenue for the current administration which is focusing on several development goals including investments on infrastructure thru the Department of Public Works and Highways’ “Build Build Build” initiative. The mission of the Department is to contribute to the current administration’s efforts to reduce poverty from 21.6% in 2015 to 13% – 15% in 2022 by boosting spending on and completion of infrastructure projects. The target is to spend about 8 to 9 trillion pesos from 2017-2022, focusing on high-impact infrastructure.
One crucial factor to encourage taxpayers to avail of the amnesty is to communicate that the government will be serious in going after those who will not comply despite this opportunity offered by the government. Without legal accountabilities after the allowed period of availment of the amnesty, the order will be reduced to just another memorandum without serious consequences to the taxpayers.
While it is important to look at Indonesia’s success in implementing the tax amnesty program, it is crucial for the Philippines’ Department of Finance to work closely with the regional arms to fully understand taxpayer’s needs in order to design a policy which will answer the objectives of the administration and effectively enforce the rules and regulations of the order.
