THE measure simplifying the tax structure for financial instruments is expected to make smooth progress in the Senate, the head of the chamber’s Ways and Means Committee said Wednesday.

The proposed Passive Income and Financial Intermediary Taxation Act (PIFITA) was broadly supported by stakeholders appearing at the hearings, with some reservations, which the panel hopes to smooth out at technical working group (TWG) level.

“Maybe we need dalawang TWG para lang kausapin ng maayos ang iba-ibang sectors. Ang difference lang naman, although mostly are supportive, ang daming sector ang tinamaan (We could need about two TWG sessions to properly consult the various sectors. While most are supportive, lots of things will be affected),” Senator Juliana Pilar S. Cayetano said in a chance interview Wednesday.

Asked about the prospects for passing the measure, which forms part of the comprehensive tax reform program, within the year, Ms Cayetano said: “I’m very optimistic, even my colleagues are very optimistic. For this year, definitely.”

The 18th Congress is working to pass all the remaining tax reform packages to meet the year-end target of the Department of Finance (DoF).

PIFITA seeks to reduce the various tax rates to 36 the government charges on passive income from the current 80. It seeks to impose a uniform 15% rate on interest income and dividends.

The microfinance industry, chiefly represented by non-government organizations (NGOs), opposed the repeal of the 2% preferential tax, in lieu of all national tax, provided under the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Prior to this, micro-finance NGOs were required to pay 5% or 12% value-added tax and other national taxes.

NGOs in microfinance said in a position paper that a repeal would effectively for the industry to “pass on this tax burden to micro-finance borrowers to ensure sustainability.”

“The higher the taxes, the higher the rates on borrowings paid by the poor,” they said.

Sen. Sherwin T. Gatchalian said the proposed tax regime for microfinance may affect the competitiveness of small entrepreneurs with the costs ultimately passed on to consumers.

Nakita ko ito on the ground when I was in a local government position, these microfinance NGOs really finance the karinderya, fish vendors… in the market, dyan sila kumukuha ng puhunan araw-araw. (I saw when I was in local government how these NGOs financed eateries and fish vendors, who depended on microfinance for their daily capital needs) If we impose higher taxes, in effect these NGOs will be uncompetitive, and second it will be passed on to consumers,” Mr. Gatchalian told the panel.

“I see the disenfranchisement of 6.5 million micro-entrepreneurs.” — Charmaine A. Tadalan