To increase government revenues, tax authorities such as the bureaus of Internal Revenue (BIR) and of Customs (BOC) in the Philippines should set their sights on bigger enterprises and other entities that are difficult to tax, according to an Asian Development Bank (ADB) report.
“Focus on larger unincorporated businesses, partnerships, and other hard‑to‑tax taxpayers,” said Janet Stotsky and Maria Hanna Concepcion P. Jaber, authors of an ADB governance brief titled “Personal Income Taxation in Asia and the Pacific: Future Directions,” published by the Manila-based multilateral lender on March 12.
Hard-to-tax businesses are those that fail to register voluntarily or, even when registered, underreport their income and expenses.
For high-income and wealthy taxpayers, the ADB researchers recommended making use of “specialized approaches.”
That means tax policies for these taxpayers should follow best practices from developed economies like those in the Organization for Economic Cooperation and Development (OECD), including the Netherlands, Canada, Italy, the United Kingdom (UK), Spain and the United States (US).
Likewise, the researchers said revenue authorities like the BIR and the BOC—the main tax-collection agencies of the Philippines—should actively participate in global efforts to track and enforce taxes on high-income and wealthy individuals, “especially those whose income and wealth is highly mobile” or can be easily moved across countries.
This would help prevent tax evasion and ensure the rich pay their fair share, no matter where they keep their wealth.
Banks and other financial institutions should also take part in tax enforcement, the researchers said. They should be required to report relevant financial information to tax authorities like the BIR.
Further, the researchers said that tax authorities should “strengthen tax withholding on wages and salaries through targeted compliance measures on large and medium employers and on certain forms of capital income, such as interest income and dividends.”
Low-income earners
Stotsky and Jaber, meanwhile, said that revenue agencies should “set an appropriate personal income tax threshold, based on a measure of subsistence income,” meaning that it should be at a level that considers basic living expenses.
“A threshold that exempts lower‑income households contributes to progressivity and eases administration for incomes below the threshold,” the researchers said.
That said, they said authorities should give tax refunds to minimum wage earners to help narrow income inequality while also motivating them to stay employed and participate in the workforce.
Over half a million Filipinos were added to the number of unemployed individuals in January. The rapid increase in jobless Filipinos made January’s unemployment rate peak at 4.3 percent, the highest unemployment rate in six months.
Among other recommendations, the researchers said the government should ensure that tax thresholds should be adjusted relative to an individual’s income, which is also adjusted with inflation, so it becomes relatively lower and sustainable over time.
Meanwhile, the researchers pushed for the implementation of a “progressive marginal tax rate schedule,” which means higher earners pay higher tax rates, with tax brackets designed to generate sufficient revenue.