Efficient collection needed to make tax cuts, hikes work
The government’s plans to lower both personal and corporate income taxes and to increase higher taxes on fuel to compensate for the tax cuts will all boil down to efficient tax collection.
Philip Tan, past president of the Mandaue Chamber of Commerce and Industry (MCCI), said during a phone interview yesterday that the government needed to do this to make this tax actions to work.
Tan said no matter how much the government lowers taxes, it would all be futile if collections would not be efficient.
Tan was asked about the effects of the proposed tax cuts on income and the tax increase on fuel and sin products.
He said he favored the tax cuts on income because it would increase the spending power of consumers, but there would also be those sectors, who would be affected by the planned tax increase.
“You can’t please everyone in this world,” he said.
He said higher tax on oil products could possibly affect households as well as the energy sector, especially power generators and those reliant on diesel.
“But most of our power is from coal and renewable sources, so it may have less impact,” said Tan.
Logistics, he added, would also be affected as truckers rely on diesel for their operations.
Car owners and taxi drivers would also be affected, although the latter can always turn to the cheaper liquified petroleum gas to run their vehicles.
“If fuel prices will not affect your cost of doing business, you will survive. If it does, you have to be competitive,” Tan said.
Tan said that the challenge now would be on how to strike a balance.
Other Cebu business leaders also welcomed the planned tax cuts on income especially those in the retail sector as this would increase the spending power of the middle class.
“It will give retail more breathing space in income tax since retail has one of the thinnest margin compared to other industries,” said Robert Go, Cebu chapter president of the Philippine Retailers Association (PRA).
Go said retail would only play with product volume, ending with very small income even with high sales due to stiff competition.
The proposed tax reforms are part of the President Rodrigo Duterte administration’s thrust to pursue a more equitable and more efficient tax system, fostering investments and job creation.
Cebu Chamber of Commerce and Industry (CCCI) President Melanie Ng earlier said this would level the playing field with Asean neighbors and spur global competitiveness.
“We believe this will greatly favor our competitiveness and support the ease of doing business in our country,” Ng said.
Diwa Guinigundo, Bangko Sentral ng Pilipinas (BSP) deputy governor for monetary stability, in an interview early this week, said that lowering both personal and corporate income taxes would not necessarily result to inflation.
“(But) higher spending does not necessarily result in complete inflation pressure. It is an incentive for business to produce more because they know people have more purchasing power,” he said.
Guinigundo said he was expecting inflation to be presently benign as the average rate for Jan. to July this year, which was at 1.4 percent, would still be lower than the lower end of the 2-to-4 percent target set by the BSP.
He said that once corporate taxes would be cut from 32 percent down to 25 percent, the cost of production for companies should go down.
“They can actually bring down the price of their products and services,” he added.
The government, he said, also stands to gain from these tax reforms as consumers start spending more.
“When the consumers start spending, they are still paying taxes through VAT (value-added tax) on products and services that they buy,” he explained.
To compensate for the proposed tax cuts, Guinigundo said the government is mulling slapping higher tax on fuel since now is the best time to do it given the currently low oil prices.
He said the government is also seen to increase tax on sugary and sin products.
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