Friends and Colleagues:
Let me begin by saying the new administration does not intend to indulge in unmitigated spending.
What we plan to do is to improve the efficiency of delivering basic services and infrastructure to benefit our communities. To accomplish this, we will need to cut redundancy in our procedures.
Among the things we aspire for in the short term are: revision of the procurement law to simplify and streamline the process; simplifying the permit requirements for infrastructure projects; creating a prioritization list and delineating delivery responsibilities between national and local projects; and, improving the absorptive capacity of key government agencies through better planning and project execution.
Last May, our voters chose overwhelmingly to cut the tax rates. This is a clear political decision. We intend to abide by it, not only because it makes political sense but also because it makes economic sense.
The decision to trim both income and corporate tax rates is consistent with our goal to be a more competitive economy in the region. The country cannot continue to handicapped by high tax rates only because we have gotten used to them. There is a norm of efficiency to be observed.
This high tax rate system we maintained was actually counter-productive. We actually collected less taxes the longer the regime was maintained. No amount of public shaming could reverse this. The higher the tax barrier, the more conducive it becomes to evade tax due.
Our tax system is the product of legislation. I cannot preempt the decision of our legislators on this. I can only insist on the preference of the new administration for a more rational equitable and competitive tax system.
Our present tax system could hardly be called sustainable. It is not progressive. It relies on collecting from less and less people. We cannot meet the net tax threshold of our neighbors using the system in place.
Let me say a few things about tax compliance.
Each year, 98.47% of tax collections come from voluntary tax compliance. Only about 3% to 5% come from audit and enforcement activities by the revenue agency. This is not a very encouraging figure, especially when set against the actual number of taxpayers in this country.
Much more effort will have to be exerted towards making tax payment a truly satisfying and simplified experience. We will have to make tax payments more accessible in theory and in practice.
To be sure, we will expand the BIR’s electronic filing saturation from the current baseline of 62.5% (representing 22 million returns) in 2015 to a much higher figure. We are likewise looking into expanding the large taxpayer service and improving taxpayer segmentation to get a better handle on our revenue base.
As things stand, only 2,320 companies account for half of our revenue base. This could not possibly be accurate. Yet we have subsisted on that small number for many years.
I am asking the BIR to look at the numbers with fresh eyes. There is a lot more these numbers conceal than they betray.
By the way, the BIR scrapped the notorious letters of authority effective last week. These letters were, in the main, used for shakedowns.
At the Bureau of Customs, we realize the urgent need to rationalize the import permit requirements. At the moment, about 50 regulators issue one sort of permit or another. The excessive requirements impede the flow of trade and unnecessarily burden business operations. We will listen closely to the inputs from businessmen as craft the rules and regulations of the Customs Modernization and Tariff Act.
Much of what ails the Customs Bureau is self-inflicted. The sooner we address the problem of a flawed corporate culture at the Bureau, the better off we will be.
I proposed to the BoC that we try out new processes in ports outside Manila. If the processes work, we can apply them in the more crowded port of Manila.
We might also adopt random audit of shipments. If no defects are found in the random audits, the traders may be exempt from audit for three years.
In addition, we are now studying possible ways we can improve the organizational capacity of our two major revenue agencies. Among the measures being studied are exemptions from the salary standardization law, increased fiscal autonomy, relaxing strict bank secrecy laws and making tax evasion a predicate crime to money laundering.
While we ease taxpayer compliance requirements, we are as committed as ever to improving enforcement. The directions from the President are clear: we will have zero-tolerance for corruption.
Needless to say, we will accelerate the RATE-RATS-RIPS anti-corruption programs. We will work closely with the DoJ to speed up resolution of 635 pending tax and smuggling cases, amounting to P103 billion in collectibles. It will be a sad commentary on our state of affairs if RATE and RATS have resulted in only 5 convictions for tax evasion and 2 convictions for smuggling.
Lastly, let me say that this administration is committed to rationalizing tax incentives.
Government provides at least P144 billion in income tax perks and tax holidays. A truly serious study needs to be done about the relevance of many of those tax perks.
Fortunately, the previous Congress passed the Tax Incentives Management and Transparency Act (TIMTA) that seeks precisely to comprehensively review our tax incentives regime.
With the data now being generated, we should be able to have a fuller view of the real costs and benefits of this program. This will enable better review of our options moving ahead.
Let me declare, as a matter of policy, that this government is open to unsolicited proposals. Anyone out there who has a bright idea should come out and propose. Government has no monopoly over bright ideas.
In the case of the approval process for PPP and similar big-ticket items, we could go for “combo” options. The financing could be shared with government or the private partner can undertake it himself. There should by no hard and fast rule.
One last thing before I close this brief presentation.
Much of what I outlined here is about delivering a bigger bang per buck. We will judiciously husband state resources entrusted to us. We cannot possibly understate the importance of maintaining transparency in all our dealings.
President Rodrigo Duterte, this week, will sign a Freedom of Information Executive Order (EO) to cover the executive branch. This is a remarkable step. It is also a challenge to the other branches of government to do the same in order to ensure a regime of transparency for all.
On the part of the Department of Finance, I will be appointing shortly Undersecretary Gil Beltran to be the Anti-Red Tape Czar.
His role will be to dramatically reduce in a period of six months the number of steps and documentary requirements in transacting business with the DoF and all attached bureaus. This will include paying taxes, getting tax refunds, acquiring tax exemption certificates, getting imports released, shipping out exports, registering a business and getting appointments with public officials.
This is going to be done today.