By Ambassador of South Korea to the Philippines Kim Inchul
The widely acclaimed Tax Reform for Acceleration and Inclusion (TRAIN) Law was enacted in December 2017. The Law includes several tax reform measures that have to be implemented within five years of its enactment such as requiring large scale tax payers and firms engaging in exports and e-commerce to digitally issue invoices and receipts and digitally report their sales data to the BIR. The launching of the Electronic Invoicing System (EIS) will be the beginning of full-fledged implementation of the TRAIN Law. The BIR Data Center for the EIS, a first step in the partnership between the Governments of Korea and the Philippines to implement the TRAIN Law, will be operational the 1st of this coming July.
Ever since Finance Secretary Carlos G. Dominguez proposed to Korea cooperation to introduce the EIS in February 2018, the two governments have been working together for a digital tax administration system suitable for the Philippines. This EIS partnership represents a significant milestone in our three decade long development partnership in light of the profound and long lasting ramifications it is expected to have on the Philippine economy.
Firstly, the digital platform for electronic invoicing will enable the BIR to broaden its VAT revenue base and collect more revenues. Since Korea installed the E-Tax Invoice System in 2010, its VAT revenues have increased by 42 percent from US$ 41.3 billion at that time to US$58.5 billion in 2019. The Philippine VAT collection in 2030 may reach more than 600 billion pesos. The tax revenues can be instrumental in financing major infrastructure projects and other important economic development projects. These projects will contribute to creating more jobs and promoting foreign investments in the Philippines.
Secondly, the digital invoice reporting system will guide Filipino businesses to cut tax compliance costs by streamlining and digitalizing tax documentation processes. Electronic invoices have several benefits compared with paper invoices. They are less prone to errors, prevent fraud and reduce processing costs. The Philippines’ average tax compliance time per year in 2018 was 171 hours. The introduction of the EIS will reduce the time to around 80 hours per year, which is close to that of Singapore in 2018. Since introducing the E-Tax Invoice System in 2010, Korea has been generating around US$782.6 million per year through tax compliance cost reduction.
It should also be noted that according to the World Bank report Doing Business 2020, high tax compliance costs are associated with larger informal sectors, more corruption, and less investment. The World Bank report clearly shows that the online tax administration system has a lower perceived level of public sector corruption. The EIS will eliminate the physical exchange of cash, which can reduce rent-seeking, and in the end improve the environment of doing business. This is why more and more economies have been quickly moving toward adopting the online tax administration system. According to the same Doing Business 2020 report, the number of economies that have an online tax platform has more than doubled in the last 15 years, from 43 in 2006 to 106 in 2020. Now the Philippines is spearheading this global trend among ASEAN members.
These changes brought about by the ElS will be the solid foundation for a more vigorous economic growth. Modernizing economic systems and financial processes through digitalization are proven drivers for promoting economic activity and efficiency. No doubt it will be a most helpful tool to better meet the challenges posed by a post-pandemic global economy.
The Korean government, through the Korea Export Import (KEXIM) Bank’s Economic Development Cooperation Fund, will continue its partnership with the Philippines to expand the coverage of the EIS nationwide from the initial 100 largest firms covered by the pilot stage to all one million firms.
We are proud to be trusted partners in realizing the letter and spirit of the TRAIN Law which is expected to be a seminal law to make the Philippine tax system more equitable and transparent and by doing so, achieve marco-economic goals such as investment promotion, job creation and in the end, poverty reduction.
AMBASSADOR KIM INCHUL (left) with Finance Undersecretaries Mark Dennis Joven (center), and Antonette C. Tionko (right).