DOF-organized International Tax Forum calls for multilateral solutions

The Department of Finance (DOF) successfully hosted the International Tax Forum: A Dialogue on Taxation in the Context of ASEAN Regional Integration last week that convened officials from the region, experts from the international financial and development institutions, as well as civil society and the private sector to discuss tax policy and enforcement strategies in the age of globalization.

“As countries in the ASEAN region grow fast to become the world’s most competitive, governments look to support this growth through sustainable revenue generation. Threats to our commitment towards creating shared prosperity rise with increasing globalization. We end the forum firmly convinced that a complex challenge can be addressed with collective and multilateral solutions,” Finance Secretary Cesar V. Purisima said.

In light of the upcoming ASEAN integration, there is broad agreement on the need for international cooperation and multilateral instruments as strategies to boost tax administration and compliance. Trends and innovations on tax enforcement were discussed, including best practices in tax treaty negotiations and relief to facilitate cross-border trade and curb tax evasion. Standards in exchange of information and accounting, the latter of which the Philippines was found to be way ahead of the curve relative to ASEAN peers, were also examined.

To keep up with international standards, the Philippines became the 68th signatory to the OECD’s Convention on Mutual Administrative Assistance in Tax Matters or MAC, a multilateral approach for the automatic exchange of information or AEOI. The DOF is advocating for revisions to restrictions in bank secrecy laws, consistent with developed countries’ tax administration policies.

The forum also addressed troubling trends in base erosion and profit shifting (BEPS), an unfair and distortive practice depriving revenues from countries where economic activity took place. The Philippines has confirmed its leading role in the Organisation for Economic Cooperation and Development (OECD) Committee on Fiscal Affairs, which will devise tools and mechanisms to curb tax evasion and avoidance.

DOF Undersecretary of the Domestic Finance Group Jeremias Paul, Jr. shared with foreign delegates the Philippine success story on sin tax reform. Reporting that sin tax reform had paved the way for sustainable public health financing, Paul said, “This has been a win for fiscal health as the share of tobacco and alcohol excise taxes to GDP in 2013 is highest since the year 2000. It is also a win for universal and public health, with the DOH budget up by 57% from 2013 (P53.3 billion) to 2014 (P83.7 billion) alone. Further, it is a win for the poor and for tobacco farmers, as funds are earmarked towards insurance coverage for the most vulnerable and the development of the tobacco regions.”

Taxation of E-commerce, extractive industries and capital markets were also covered, where social, environmental, and economic justice emerged as the key themes to effective tax policies. DOF Chief Economist and Undersecretary of the Policy Development and Management Services Group Gil Beltran urged, “Tax systems must raise revenues to benefit the areas and communities where businesses operate and profit from. Tax policy must therefore not only be simple, progressive, and equitable, it must consider environmental and social justice as key priorities as well.”

The forum focused on tax policies as tools to drive growth and reduce inequality. The Philippines has among the highest effective tax rates in ASEAN, however, tax effort, or tax revenue to GDP ratio, stood at a low 13.7% last year, lower than regional peers despite having already increased it from 2010’s 12.1%, or by 1.6% points. Thus, the DOF is looking to propose a holistic, revenue-positive, and equitable comprehensive tax reform package designed to bolster growth and competitiveness while enforcing fairness and equity among all Filipinos.

Delivering closing remarks on behalf of Finance Secretary Purisima, DOF Undersecretary of the Revenue Operations and Legal Affairs Group Carlo Carag cautioned, “Governments committed to creating shared prosperity through public investments in infrastructure, health, and education have much to lose if we fail to update and adapt our tax policies and enforcement mechanisms to the changing times.”

Reflecting the Philippines’ resolve to innovate and enhance its tax system, Bureau of Internal Revenue Commissioner Kim Henares said after the forum concluded, “Living in an increasingly globalized world requires governments to adapt and update tax policy and enforcement strategies. International cooperation is key if we want to raise sustainable amounts of revenues to continue funding growth and investments to our people and country.”

“Tax is a paradox where giving more ensures the government is better able to play its role as the largest recycler of funds in productive investments in infrastructure, healthcare, education, and other social services. Thus, giving more taxes also means receiving more benefits from the government,” Undersecretary Carag added on Finance Secretary Purisima’s behalf.