Revenue collections from professionals and self-employed individuals account for only 20 percent of the total personal income taxes collected by the government despite the high tax rates, while wage earners continue to carry the bulk of the burden, or 80 percent of revenues produced from income tax, according to the Department of Finance (DOF).

The unfairness of the situation necessitates the much-delayed reform in the tax system that aims to broaden the revenue base and generate funds for its accelerated spending on its programs to attack poverty and improve living standards, DOF spokesperson Paola Alvarez said.

Alvarez said the disparity worsens when considering that 40 percent of all income comes from self-employed and professionals (SEPs). This information is a result of the combined Family Income and Expenditures Survey and Labor Force Survey adjusted to correct under-reporting, which showed that compensation owners accounted for 60 percent of the income generated from doing business or working here, while SEPS accounted for 40 percent.

“We have high tax rates for self-employed and professionals, yet we have a very narrow base among them. The Bureau of Internal Revenue (BIR), however, cannot fully audit them because of existing bank secrecy laws,” Alvarez said.

BIR data show that in the 1980s, the share of wage earners in income tax collections was 66 percent and 34 percent from SEPs, but the contributions of the latter began to decline in the 1990s, when they accounted for only 20 percent of income taxes.

The share of SEPs declined further to 14 percent beginning in year 2000 up to the present.

On top of reconfiguring the skewed tax system, Alvarez said the Duterte administration would also lobby Congress to relax bank secrecy laws as a way to flush out tax dodgers.

“Besides correcting this disparity by lowering income tax rates, Malacañang’s economic team will push for the relaxation of bank secrecy laws for tax fraud cases and the inclusion of tax evasion as a predicate crime to money laundering,” Alvarez said.

“In relaxing bank secrecy laws, we want to cover all types of accounts, whether they
pertain to deposits or investments, or to peso and dollar accounts,” she added.

Alvarez said, “We also want to include the crime of tax evasion as a predicate crime to money laundering, so we can catch the big tax evaders and haul them to court.”

Besides these measures, Alvarez said the DOF is also considering proposing legislation for a final tax amnesty that will be absolute to clear tax dockets.

In line with the Duterte administration’s 10-point socioeconomic agenda, the government’s vision in the medium term is to reduce the poverty rate from today’s 26 percent to 17 percent of the population by 2022, along with attaining high-middle income status for many of its citizens.

This agenda is meant to make the Philippines a law-abiding country, be at peace with its neighbors and domestic insurgent groups, and on the par with its more economically vibrant Asian economies, Alvarez said.

“With the reforms put in place by the Duterte administration, it hopes that by 2040, or one generation from now, extreme poverty in the country would be a thing of the past, with inclusive economic and political institutions offering equal opportunities for everyone and the country attaining high-income status,” Alvarez said.

She said that to realize this vision, the Philippines needs to sustain its GDP growth rate of at least 7 percent every year for the next two decades and shift the source of economic expansion from consumption to investments.

“We also need to massively invest in our people and in infrastructure to realize this vision. We should focus our spending on infrastructure, research and development, health, education, lifelong training for our labor force and social protection for the poorest of the poor,” Alvarez said.

Funding all these investments, she said, would require an additional P1 trillion per year on top of the current P1.3 trillion expected to be spent by the government in 2016 on these priorities, she said.

The additional P1 trillion funding requirement would be sourced from the implementation of a fairer, simpler and more efficient tax system with low rates and a broad base that aims to promote investments, create jobs and reduce poverty.

Alvarez said the government also needs to institute tax administration reforms at the BOC and BIR.

Budget reforms should also be carried out to improve spending, ensure transparency and generate savings efficiently, Alvarez added.

She said, “President Duterte’s promise of real change (tunay na pagbabago) envisions a society where all Filipinos enjoy inclusive growth, improved public services, safe, healthy and peaceful communities, more money in their pockets, and more comfortable lives.”