The DOF is committed to reforming and modernizing the Bureau of Customs (BOC) to balance its dual responsibilities in curbing smuggling and trade facilitation. With the increased globalization of trade and the uptick in trade activity due to rapid economic growth, the DOF recognizes the need to upgrade customs laws and policies to keep up with the recent trend towards harmonization, modernization, and simplification of customs procedures.
To augment the reform initiatives currently underway at the BOC, the DOF supports legislative measures to impose higher standards for professionals (such as customs brokers), improve valuation mechanisms to determine accuracy of declared values of goods, and the delegation of post-entry audit functions to an external government group.
The DOF also supports measures to allow for considerable flexibility in the determination of de minimis value to prevent the instance wherein the specified amount would become inapplicable or not up-to-date. To prevent abuse, the DOF also recommends that fees for overtime work should be shouldered by the government, not private enterprises, and that arrangements for shifting be done to improve 24/7 services.
To enhance trade facilitation, the DOF also supports the mandatory issuance of alert orders which are pre-numbered, listed in a single logbook, marked confidential and reported to the department, clearly identifying the person who issued the alert. Streamlining the modes of disposition of property under BOC custody is also suggested.
The DOF also recommends legislating penalties for those who committed errors in the declaration of goods to be increased, particularly for repeated offenders, with the presumption of good faith considered removed to those who have erred in their declaration for up to three instances for a specified period.
Finally, to keep up with the times, the DOF advocates for greater transparency and efficiency at the BOC through electronic submissions of documents and the advance electronic transmittal of cargo manifest, bill of lading and other shipping documents.
Currently, the government does not have a system to collect, measure, analyze, and use information on the tax subsidies or incentives it grants to private entities. In 2011, revenues foregone from tax incentives were projected to have reached P144 billion alone from just under 30% of available data captured. With the limited resources the government has, the DOF believes that a more efficient system stems from having better information to facilitate analysis and evaluation of the cost, economic impact, and benefit incidence of tax incentives.
Thus, the DOF advocates for legislation to develop and establish a system to measure the fiscal exposure of the government from tax incentives, for transparency and proper disclosure, informed economic planning, fiscal prudence, and public accountability in policy decisions and government actions. Maintaining such a system is in accordance with international best practices and will only improve our competitiveness.
Further, the DOF believes that tax incentives should address the viability gap. Profitable business ventures should no longer be subsidized by the government. The DOF also recommends sunset provisions in granting tax incentives as the government cannot perpetually subsidize investment activities. Finally, the DOF supports the replacement of redundant instruments like the Income Tax Holiday (ITH), in favor of performance-based types of tax incentives, such as accelerated depreciation and longer carry over of losses.
The DOF also supports legislation to rationalize the mining fiscal regime, as part of its commitment to balance the competing demands of growing the economy while ensuring the responsible use of natural resources by extractive industries. As natural resources are essentially in public ownership, the DOF believes that the public sector should be able to gain a fair and equitable share of the revenues to augment funding for public investments in infrastructure, environmental protection, as well as social and human services.
Our fiscal performance through the past four years has shown that through efficient tax administration alone, we have come a long way in augmenting revenues. However, in the light of the upcoming ASEAN integration, the desire to boost the Philippines’ competitiveness, and the need to grow a strong middle class through sound and fair economic policy, the DOF welcomes legislative measures to change the tax system, particularly, the review of our income tax structure.
The DOF maintains three main points as its minimum position as we pursue dialogue with legislators on tax reform: that legislation must be holistic, revenue-positive, and equitable so all Filipinos may benefit from a robust fiscal position.
Lowering income tax rates will attract even more foreign investors into the country but will be detrimental to our fiscal health if they are not offset by revenue-generating measures. The DOF believes that revisions to the tax code cannot be done in a piecemeal manner, as the aim is to look at the country’s various revenue-generating measures as part of a single system. For example, lowering rates on one end translates to lowering government capacity to spend on critical investments in public goods and services. Ensuring that all sectors contribute their fair share to public investments like infrastructure and social services is integral to our shared prosperity.
Thus, the DOF firmly believes that any revenue-eroding measure must be compensated by an equivalent revenue-increasing measure. Irresponsibly undermining our country’s revenue-generating capacity today will incur deficits that taxpayers of future generations will have to pay. As a government, we are fully committed to maintaining the fiscal health we have worked hard to regain as a country over the past few years.
From an equity perspective, the DOF believes that measures to change the tax structure in the country must benefit majority of the population. Some proposals give relief to a very thin slice of the population in exchange for billions of foregone revenue, a consequence in terms of foregone public investments that millions of Filipinos cannot afford to lose out on. Any tax policy reform to be passed should correct the tax system in favor of the majority of hardworking Filipinos in the country, rather than the very few high-income earners who do not need as much relief.
The DOF is currently conducting studies with an appropriate approach to tax reform in the country. The DOF and its attached agencies continue to improve tax collection efficiency, continuing a commitment made since the start of this administration to prioritize strengthening tax administration over introducing new taxes.