Tax amnesty plan premature, says Citi
MANILA, Philippines – Instead, the government should pursue the enactment of the proposed Comprehensive Tax Reform Program (CTRP) before pursuing a tax amnesty program, Citi economist Jun Trinidad said.
He said fiscal priority remains the passage of the first component of the tax reform measure that includes income tax cut and excise tax hikes.
“Limited or general tax amnesty proposals can offer strong basis for a market lift, but not at this time,” Trinidad added.
He said relaxation of the Bank Secrecy Law should be prioritized more than tax amnesty since bank secrecy has inhibited stricter and timely enforcement of anti-money laundering laws.
Finance Secretary Carlos Dominguez III earlier announced plans to implement a tax amnesty program to be patterned after Indonesia.
“We sense the primary objective of a general tax amnesty program would be to unclog the judicial system from the burden of deciding on these outstanding tax cases, while addressing conditions that can weaken governance within the judiciary,” Trinidad said.
Unlike in Indonesia, he said targeting the return of offshore capital owned by residents for an implicit one-off ‘deficit funding’ is not a policy priority for the Philippines.
The Philippines, he added, has not been overly dependent on offshore funding and past current account surpluses built up a formidable foreign exchange reserve position.
However, the current account position of the Philippines turned into a deficit in the fourth quarter due to strong capital goods and raw material imports.
“The onshore foreign currency deposit unit (FCDU) system and the bank secrecy law offer safe or legal refuge to residents during times of political shocks,” he said.
The House of Representatives already approved House Bill 4814 granting tax amnesty to tax cases filed in courts and at the same time calls for lower inheritance or excise tax rates.
The National Tax Research Center (NTRC) estimated potential revenues of P5-P10-billion from the inheritance or estate tax rates assuming full tax payment or compliance of beneficiaries.
Credit Suisse earlier said the Philippines could not implement an effective tax amnesty program just like Indonesia due to the country’s strict banking secrecy law.
Indonesia’s tax amnesty was successful in part because there was a credible threat in the implementation of the Automatic Exchange of Information (AEOI) and the Common Reporting Standards (CRS) rules in 2018.
The Philippines is not yet a signatory to the AEOI.