Finance Secretary Carlos Dominguez III has vowed to work closely with the Bureau of Internal Revenue (BIR) as it takes on the noble task of ensuring the financial sustainability of the Duterte administration’s ambitious program to keep up the country’s growth streak while bringing poor and underprivileged Filipinos to the economic mainstream by way of unmatched investments in education and health care.
Being in the business of raising revenues, the BIR is working “under extraordinary circumstances” at “the frontline of the new government’s broad effort to reverse the pattern of slow and exclusive growth” and meet the challenge of freeing six million Filipinos from poverty on the Duterte watch, Dominguez said.
“We, who are in the business of raising revenues so that government may amply invest in our people, are at the frontline of this broad effort to lift our economy to a higher plane of growth. We carry the best hopes of our people on our shoulders,” Dominguez said at the Fourth Quarter Revenue Command Conference held at the BIR Head Office in Quezon City.
“I look forward to closer collaboration with you in the coming period. Together, we will do what has to be done. We will undertake the reforms and improve on tax administration. We will do this together. Our people expect us to succeed. We will not fail them,” Dominguez said.
He noted that the GDP expanded by 7.1 percent in the last quarter—making the Philippines the fastest growing economy in Asia in that period—and for the government to sustain this momentum in the medium term at the very least, the BIR will have to help raise enough revenues for investments to transform the economy from a consumption-led into an investment-driven one.
This will entail, he said, massive public investments in infrastructure to pull down production costs to match those of the Philippines’ more competitive Asian neighbors.
Dominguez said this task will require the BIR to help earn the needed revenues for the higher spending strategy even as it embarks on the equally challenging job of carrying out a comprehensive tax reform program anchored on bringing down the income tax rates for individuals and corporations to the regional average.
To make a 7 percent growth rate sustainable, he said the economy should shift from being consumption-led to investment-led, which “requires massive public investments in infrastructure — from roads to digital highways, from ports to portals — to bring down our production costs to match those of our neighbors.”
“Public spending will carry its share of economic progress. We have committed to that,” Dominguez said.
“The new administration has committed to deliver truly inclusive growth for our people. That means we have to ensure the sustainability of our growth momentum while at the same time ensuring that all our people are brought to the economic mainstream through investments in our human capital, particularly education and health care,” he added.
The Department of Finance (DOF) has submitted to the Congress last September its proposed Tax Reform for Acceleration and Inclusion Act, which details the first tax plan on lowering personal income tax rates.
This first package also includes compensatory measures that aim to expand the base for the value-added tax (VAT) to plug massive leakages, adjust the excise tax on petroleum products and index these to inflation, and restructure the excise tax on automobiles via a progressive ad valorem system.
Together with the DOF, Dominguez said the BIR will have to engage in the necessary public diplomacy to improve this tax plan’s acceptability to the Congress that will have to pass it into law, and also to the taxpayers who will have to pay for it.
“It might seem unwise to bring down income tax rate at precisely the moment we need more revenues to fuel our economic growth. But that is precisely the challenge. We have to renovate our tax system to become simpler, fairer and more efficient. While reducing the tax rate, we need to improve our compliance and plan to broaden the tax base,” he said.
“You know more than anyone else that oppressive rates are hard to enforce. Lower rates reduce incentives to evade. With the plan to lower rates, the BIR should now prepare its own plans to broaden the base of our taxation. The goal is to make the lower rates revenue neutral through improved tax administration. That will be a challenge for BIR’s creativity and passion. I am confident in your dedication and in the store of talent in this agency. We will deliver. The nation relies on that,” he said.
Dominguez told BIR officials and employees that life will not be easy in the coming months because, in order to convince legislators and taxpayers to sign off on this tax plan, the BIR will have to demonstrate that, as among the main revenue agencies, it is capable of henceforth improving its administrative efficiency and plug the perennial leakages in its tax collection drive.
“One of my most difficult tasks right now is convincing the Congress to pass the [tax reform plan]. Their argument against me is you. You have not delivered enough. The Congress and I have no answer to that. That’s why I came here today. I want to know from you what to answer the Congress. Why are you seen as being so inefficient and quite frankly, quite corrupt? This is my difficulty in helping the Filipino people come up with a very strong, new tax reform phase. So I hope to listen to you in a few minutes. Tell me how I can defend you in Congress by telling me how you are improving your tax administration,” Dominguez told BIR officials and employees during his visit.
“We hope all the revenue-enhancing measures will pass the legislature surely and quickly. We are conducting the necessary public diplomacy to improve their acceptability to our taxpayers and convince our legislators this is the right way to go. It will help if we are able to demonstrate that, among our main revenue agencies, we are able to improve administrative efficiency and reduce leakages,” he said.
He expressed confidence that the BIR family is talented and dedicated enough to deliver on this daunting task of “breaking new ground” and doing “new things for our people.”
“Public finance is the lynchpin of this ambitious economic program. Without the support of strong public revenues, the entire economic program will unravel. The reforms cannot be done. The growth cannot be sustained. The emancipation of millions of Filipinos from the quagmire of structural poverty cannot be won,” Dominguez said.