Low tax rates can mean high revenue collections if implemented and administrated correctly. But to do that, the taxes first need to actually be collected. Based on the BIR’s 2017 Annual Report, most of the tax collections for individuals came from withholding taxes on wages. Of the P390.85 billion collected from individuals, P317.74 billion came from the withholding tax on compensation income earners.
Other individuals, such as Self-Employed and Professionals (SEPs), contributed only P17.61 billion. This amount is lower than the collections on Capital Gains Tax or other withholding taxes, which contributed the remaining P20.84 billion and P34.66 billion, respectively.
In other words, it equates to a very low voluntary compliance among taxpayers, particularly SEPs.
A possible reason for these dissonant figures is the byzantine bureaucracy plaguing our tax system. This complex system benefits no one and serves only to discourage taxpayers from being compliant.
Reforming this system by making it simple, fair, and efficient is the goal of the Comprehensive Tax Reform Program. While it proposes a wide-ranging change, it mainly concerns itself with tax policies.
The tax administration will need its own reforms as well.
One such solution is the successful implementation of the electronic filing and payment of taxes. By doing so, it will improve voluntary compliance and broaden the taxpayer base.
The BIR already has the Electronic Filing and Payment System (eFPS) but it remains underutilized and tedious to use. What the BIR needed was to authorize third parties to develop their applications that would create effective electronic channels.
On Nov. 8, 2018, the BIR addressed that problem by launching the Electronic Tax Software Provider Certification (eTSPCert) System. This initiative would allow the BIR to accredit individuals or businesses who provide electronic tax filing and payment channels. The applications developed could be for e-filing only, e-payment only, or a combination of both, like the TaxWhizPH mobile app.
The program is sponsored by the United States Agency for International Development (USAID) and its e-PESO project.
Essentially, a software developer can apply for certification and will be provided with guidelines by the BIR. The application would then be thoroughly evaluated before being certified. There will be a no-contact policy between the applicants and any BIR personnel.
For electronic filing software, the BIR will check the forms the app will produce and verify its accessibility in the BIR’s database. For electronic payment software, they will check whether the collection file structure is consistent with their specifications.
There will also be no fees for the certification process.
This project is meant to make compliance easier for taxpayers, but doing so also benefits the government. With a more accessible and less complex system in place, doing business in the country will be much easier.
This will be a welcome development after the country’s drop in the Ease of Doing Business rankings in 2018.
Based on its latest report, the country dropped eleven places from 113th to 124th out of 190 countries. One of the factors in measuring the Ease of Doing Business is the ease of paying taxes. By simplifying its process, the Philippines could see an improvement in its rankings as well.
Aside from that, the government will also benefit by broadening the taxpayer base and lessening corruption.
Based on the BIR’s latest annual report, there are only 19,260,058 registered individual taxpayers. This amounts to less than half of the 40 million working population during that period.
It should also encourage delinquent taxpayers to comply, especially those who gave up only because of the convoluted tax system. Fear of making mistakes and fear of being harassed are other reasons taxpayers may use to justify evading taxes.
These will all be addressed by the implementation of electronic channels.
Since it is automated and there will be little to no contact with BIR personnel, the chance of corruption and harassment is drastically lessened.
Beyond just providing electronic filing and payment channels, other features could be included in the application as well. Innovation will be the key in the competition that will ensue among certified applications. For instance, the TaxWhizPH app’s features of immediately providing the applicable forms and automated calculations of tax due will be sought after. It also includes game-changing features, such as the automatic extraction of relevant data by taking pictures of a receipt.
The goal of these electronic channels should be to make the filing and payment of taxes more convenient. The development of new features should revolve around removing human error, such as miscalculations or missed deadlines.
The TaxWhizPH app’s built-in tax calendar combines the warnings of upcoming deadlines and reminders of new BIR issuances. As a mobile application, it is also easy to keep at hand.
These types of applications will be most useful to self-employed and professionals who have to handle their own taxes. Often, with little to no help from anyone. These programs will provide that needed help — providing the necessary forms and guiding them through the process.
The TaxWhizPH mobile app can already be downloaded via Google Play Store. To subscribe for free, simply visit app.acg.ph.
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.
Raymond A. Abrea is a member of the MAP and one of the 2017 Outstanding Young Persons of the World, a Move Awards 2016 Digital Mover, one of the 2015 The Outstanding Young Men of the Philippines (TOYM), an Asia CEO Young Leader of the Year, and founding president of the Asian Consulting Group (ACG) and the Center for Strategic Reforms of the Philippines (CSR Philippines).