THE Department of Finance’s (DoF) proposed changes to the Senate’s version of the capital markets reform bill could bring in additional revenue of P300 billion by 2030, Finance Secretary Ralph G. Recto said.
“We are raising new revenue. We’ve tweaked the revenue measures (like) the Passive Income and Financial Intermediary Taxation Act (PIFITA),” Mr. Recto told reporters last week.
The tweaks will produce “a revenue gain of up to P300 billion by 2030,” he added.
PIFITA, or House Bill No. 4339, is the fourth package of the Comprehensive Tax Reform Program, initiated in 2018 to bring about a more equitable and efficient tax system.
The bill seeks to “harmonize the taxation of passive income and financial intermediaries by reducing and simplifying the complicated tax rates on financial transactions.”
This modifications were made to the proposed Capital Markets Efficiency Promotion Act (CMEPA) or House Bill No. 9277, and its Senate counterpart — Senate Bill No. 2865, also called CMEPA.
The Senate’s CMEPA bill was filed by Senator Sherwin T. Gatchalian in November and is currently awaiting second reading.
In a letter with the proposed changes to the Senate’s CMEPA bill addressed to Senate President Francis G. Escudero, the DoF said factoring in the proposed changes, the bill could generate P13.85 billion in the 2025-2028 period.
Also projected for the period was a P289.08-billion tax collection generated by the Government Revenues Optimization through Wealth Tax Harmonization (GROWTH), previously referred to as DoF-enhanced CMEPA, in the same period.
However, the CMEPA bill in its current form could cause P140.11 billion in foregone revenue for the same period, it said.
“Considering the foregoing, we respectfully propose to include provisions and adopt the proposed language under the DoF’s GROWTH bill,” the DoF said in the letter.
Among the proposed provisions by the DoF are to repeal the exemption on excise taxes imposed on pickup trucks, and to set a uniform 20% interest income rate.
The DoF said the “repeal of the exemption on pickup trucks will address market distortions and inequities while restoring fairness among industry players.”
Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, pickup trucks were granted special tax treatment to benefiting small business owners and professionals.
It also proposed a uniform final tax rate of 20% on interest income on savings deposits, time deposits, foreign currency deposit units, deposit substitutes, and long-term negotiable certificates of deposit.
Meanwhile, the House-approved PIFITA proposed lowering the interest income rate to 15%.
The Senate’s CMEPA bill does not mention any reduction of tax rates for interest income or repeal of the pickup trucks excise exemption.
The GROWTH bill is expected to raise much-needed revenue beginning in 2025, but will also “improve the progressivity of wealth taxes, harmonize business taxes on financial intermediaries, and level the playing field on currency deposits.”
Among the DoF’s proposed revisions are temporarily increasing the rates of capital gains tax on real property, donor’s tax, and estate tax to 10% from 2025 to 2030, which will be reduced to 6% effective 2031.
“Our proposal, on the 6% to 10%, on the capital gains of the estate and the donors, has a sunset provision until 2030. When 2030 comes, it will revert to 6%, unless extended by Congress. I’ll leave it to Congress,” Mr. Recto said.
He also reiterated that this is not a “new tax” but an amendment of the PIFITA.
Asked whether the decision to not impose new consumption-based taxes was due to the nearing midterm election, Mr. Recto said there are too many consumption taxes at present.
“Maybe what we can do is plug certain leakages like the PWD (Persons with Disabilities) benefits which are being abused. I think the National ID will help with that. I hope by next year, if I’m not mistaken, we will have sufficiently funded the PSA (Philippine Statistics Authority),” he said, referring to the agency overseeing the National ID program. — Aubrey Rose A. Inosante