TRAIN-1B tax amnesty worsens PH tax inequities

November 27, 2018

by IBON Foundation

The Duterte administration is set to make the country’s tax system even more regressive and inequitable with the looming passage into law of Tax Reform for Acceleration and Inclusion (TRAIN) Package 1B which is yet another tax amnesty package for the rich. Research group IBON said that TRAIN-1B rewards tax delinquents for bad behavior and encourages continued tax evasion at the expense of the poorest Filipinos.

The Senate and the House of Representatives last week passed their respective versions of TRAIN-1B or the proposed Tax Amnesty Law pushed by the administration’s economic managers – Senate Bill No. 2059 on November 19 and House Bill No. 8554 on November 20. The bills are now due to be taken up for reconciliation at the bicameral conference committee level.

The general amnesty covers “all national internal revenue taxes” which are defined by the Tax Code of 1994 to include: income taxes; estate and donor’s taxes; value-added tax; excise taxes; documentary stamp taxes; other percentage taxes; and other such taxes collected by the Bureau of Internal Revenue (BIR). Individuals and corporations can avail of the amnesty.

IBON executive director Sonny Africa remarked that the two versions differ on some details but have the same essential content: “Thousands of delinquent taxpayers will be able to settle their unpaid tax liabilities at a discount and be freed of any civil, criminal and administrative liabilities,” he said.

“The tax amnesty worsens the inequity of the country’s tax system,” Africa said. “Repeatedly lessening the tax burden of mostly well-off tax evaders reinforces how rules are different for the rich and powerful,” he continued. According to Africa, allowing tax evaders to pay less than they should in effect means that taxpayers who paid the correct amounts on time are being penalized for their diligence. This is also in stark contrast to how the poor are unable to avoid the consumption taxes which the Department of Finance (DOF) increasingly prefers over more progressive direct taxes.

“The tax amnesty ironically even encourages tax evasion and corruption,” said Africa. Tax amnesties happen regularly and, if passed into law, this most recent one will be the 18th since 1972 after the last one in 2007 during then president and now House Speaker Gloria Macapagal-Arroyo’s time. Regular tax amnesties incentivize repeat tax evaders, Africa said, and actually facilitate corruption by periodically erasing evidence of pervasive non-collection by revenue authorities.

The Duterte administration is taking huge steps to make the country’s tax system even more regressive, pro-rich and anti-poor with its flagship TRAIN tax reforms, said Africa: TRAIN-1 reduced income, estate and donor’s taxes on the rich while increasing the consumption tax burden on the poor; TRAIN-2 will reduce corporate income taxes; and TRAIN-1B’s tax amnesties reduce the tax burden on the rich even more.

The DOF reportedly estimates the tax amnesty to generate as much as Php26 billion. Africa however said that this is only a superficially impressive short-term gain because the amnesty reinforces non-compliance and non-enforcement.

“Sustainable long-term gains can only come from fearless collection of higher direct taxes on income, wealth, and property taxes on the rich,” Africa said. “Letting tax evaders off the hook is not a solution – the government should instead ensure compliance and enforcement as well as address corruption in revenue collection agencies,” he concluded. ###