Tax amnesty plan faces hurdles – Credit Suisse
MANILA, Philippines – Investment bank Credit Suisse said an effective tax amnesty program would face hurdles in the Philippines due to the country’s strict banking secrecy law.
In its Asian daily report titled “Philippines: Credible threat still lacking,” Credit Suisse economist Michael Wan said the planned program announced by Finance Secretary Carlos Dominguez III faces challenges.
“We think the Philippines has some way to go before it can implement an effective tax amnesty program akin to Indonesia’s,” Wan said.
He pointed out 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.
Wan said the Philippines is not yet a signatory to the AEOI. The AEOI and CRS are internationally agreed standards to increase global tax transparency. Countries accomplish this through regular and automatic exchange of financial account information between jurisdictions.
“The key constraint in the Philippines right now is a lack of a credible threat to taxpayers in case of non-compliance, either on domestic or foreign sources of income.
According to him, a key constraint is the Philippines’ strict banking secrecy laws that could be addressed by the Comprehensive Tax Reform Program being pushed by the Department of Finance.
“Strict bank secrecy laws are key barriers to implementing CRS in the Philippines. First tax reform package contains some provisions to relax bank secrecy. The Philippines is not yet a signatory to the AEOI and the CRS, although it has previously indicated its intention to implement it from 2018,” Wan added.
He said the head of the Bureau of Internal Revenue (BIR) only has limited power to enquire into bank deposits, and could only do so when a taxpayer is deceased or when a taxpayer is unable to fulfill his tax liability.
“We note that the first tax reform package in its current form has provisions to relax banking secrecy through giving the BIR commissioner more leeway in tax evasion cases and in cases of tax information exchange with foreign jurisdictions,” he said.
However, the passage of the tax package in its current form is not certain as the Senate remains less committal despite strong support from the House of Representatives.
The Philippines implemented several tax amnesties in the past but they have generally been unsuccessful. The last tax amnesty law was passed in 2007-08 during the term of former president and now Pampanga Rep. Gloria Macapagal-Arroyo, with less than 0.1 percent of gross domestic product of revenues raised.
The investment bank said the Duterte administration would benefit from more successful high-profile cases against corporates on tax evasion, such as the recent case brought up against tobacco firm Mighty Corp.