Philippine Government Pushes For Next Phase Of Tax Reform

by Mary Swire, Tax-News.com, Hong Kong

29 July 2005

The Philippine Department of Finance is to begin lobbying Congress to approve the second phase of the government's programme of tax reforms, the major aspect of which will see the rationalisation of corporate tax deductions.

Under the new measures, known as the simplified net income tax system (SNITS), the allowable deductions from the taxable income of corporate taxpayers would be reduced and self-employed individuals would be treated as corporate taxpayers.

According to Finance Undersecretary Gil Beltran, these measures, along with the rationalization of tax and duty exemptions as investment incentives, will help the government achieve its target of increasing tax revenues as a proportion of gross domestic product from 13% to 18% - a task which has been made more difficult following the Supreme Court's freezing of a new law expanding the scope of value added tax.

This measure sought to bring VAT exempt industries, such as petroleum, power generation, airlines and shipping companies, into the VAT net, charged at 10%. However, a petition lodged by Rep. Enrique Garcia protested that the law was unconstitutional because it removes the distinction between luxury goods and essential goods and services, effectively making the consuming public bear the VAT tax burden regardless of ability to pay.

The Supreme Court is reportedly due to make a ruling on the constitutionality of the new VAT law in the middle of August.

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