Dominguez flags tax advisers’ role in raising gov’t borrowing

THE effective tax rate for value-added tax (VAT) in 2021 was significantly lower than the posted rate of 12%, reflecting the tax avoidance strategies provided by tax advisers, Finance Secretary Carlos G. Dominguez III said.

He said in a statement on Thursday that the reduced tax collections caused the government to borrow more to fund its pandemic response.

He was addressing his remarks to the Tax Management Association of the Philippines, and called on them to behave in a more “patriotic” manner, according to the statement.

He said the effective rate for VAT last year was 5%.

Tax avoidance is legal, while tax evasion is not. Avoidance makes use of various techniques to reduce tax bills, such as investing in tax-free instruments or structuring deals to make use of tax havens.

Before the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law took effect last year, the effective corporate income tax rate was 9%, against the posted rate of 30%.

The discrepancies between the rates were a result of advice given by tax professionals to their clients, he said.

“Had the government been able to collect all taxes due, we would have had more funds to cover our economic investments, debt service, and COVID-19 response expenditures,” he said.

“We would have borrowed less. The government would have been better able to invest in building the prosperous future our people deserve.”

Government revenue collections in 2021 rose 9%, he said. In 2020, government revenue declined due to the economic downturn caused by the coronavirus disease 2019 (COVID-19) pandemic.

The government has ramped up borrowing to finance its pandemic response, which included the purchase of vaccines.

At the end of 2021, the government had P11.73 trillion in outstanding debt, up 19.7%.

The Finance department as of Jan. 14 raised about $25.8 billion from borrowing and grants for the government’s COVID-19 response from multilateral lenders, development partners, and following the issue of foreign currency-denominated global bonds.

Mr. Dominguez said that tax advice “is probably the more lucrative side of your profession. But it is not the most patriotic.”

“Our experts in tax management should encourage our businesses to pay the right taxes and keep with the intent of our tax laws, instead of spending so much intellectual energy in finding every loophole there is.”

He added that the government needs revenue to strengthen its public health system after the pandemic.

“We need to invest more in infrastructure and human capital development projects. The rehabilitation of communities devastated by extreme weather events will impose added costs to the government. We have to spend more to make our communities more resilient to climate change.” — Jenina P. Ibañez