Citizen tax planning

Any day from now, we expect the Bicameral Committee to submit the final version of the Tax Reform for Acceleration and Inclusion (TRAIN) package one to Malacañang for the approval and signature of President Duterte.

If everything goes according to plan of the Department of Finance (DoF), the tax reform law will be implemented in January 2018.

What does that mean to ordinary employees? How about for small businesses? And for the large taxpayers, will it mean less tax burden due to lowering of income tax? Or more aggressive tax audit and higher assessment to offset revenue losses from lowering of personal income tax?

The real big winners are our employees earning a monthly salary of P21,000 and below as they will be exempted from paying income tax. However, those earning above P8 million will be slapped with 35% personal income tax, higher than the current 30% corporate income tax.

It will be a merrier Christmas as well for our small businesses, as the TRAIN offers an optional flat 8% tax based on gross sales or receipts in lieu of business and income taxes.

Part of the tax package is an administrative reform to allow annual and quarterly filing and payment of income and business taxes in lieu of the monthly, even bi-monthly compliance under the current system.

The bigger bonus are the ease-in-tax payment provisions from slushing the 12-page income tax return (ITR) to 2-page ITR to simplified bookkeeping requirements among others.

This is exactly what the comprehensive tax reform package means — a simpler, fairer and more efficient tax system.

But it’s not all good news, as we all have to endure some sacrifices to make the system work. Here’s an overview of TRAIN package one as approved by the Bicameral Committee (see chart).

Equally important to the proposed tax policy and administrative reforms is improving the voluntary compliance of taxpayers, especially the medium to large corporations, to avoid unnecessary penalties and compromises during the audit of the Bureau of Internal Revenue (BIR).

Admittedly, many of us are not even registered taxpayers.

While there are a few who registered themselves as individual or corporate taxpayers, only employees can be considered honest taxpayers as their income taxes are withheld at source.

In fact, 82% (P233 billion in 2014) of the total income tax collections from individual are withholding taxes on the compensation of our employees, while only five percent (P24 billion in 2014) is paid by self-employed and professionals.

So, if we want the comprehensive tax reform to work for us, for nation building, we all have to do our share.

For companies who are regularly audited by BIR, we have to stop bribing examiners and start paying the right taxes. Let’s heed to the call of BIR Commissioner Caesar Dulay to pay the right taxes correctly and on time, and not to the “pockets” of some corrupt BIR personnel.

Per RMC 60-2017, taxpayers are given the option to subscribe to the Seal of Honesty (SoH) Certification Program to help them improve their voluntary compliance as partners in nation building upon full satisfaction of the qualification criteria as a basis for entitlement of the benefits i.e., issuance of annual tax clearance, last priority audit and other privileges which DTI and other government agencies may extend to certified SoH taxpayer.

To start paying the right taxes or to improve our voluntary compliance and avoid unnecessary penalties and compromises from BIR audit, we need to undergo (citizen) tax planning and compliance review.

Similar to the annual strategic planning conducted by businesses, a taxpayer must also do tax planning to ensure full compliance on all tax rules and regulations, and at the same time, make a projection of the estimated tax liabilities to be included in the annual budget of the company.

Paying the right taxes is not necessarily paying more taxes.

In our social enterprise, we consider citizen tax planning as a game-changing strategy to help taxpayers pay the right taxes without the burden of unnecessary penalties and compromises. It’s an investment to help individuals and corporations save millions of taxes from unplanned tax compliance resulting to higher tax assessments with more than 200% penalties during BIR audit, while helping in nation building by paying the right taxes.

As we always say, if we want a better Philippines, we need to be good citizens and better taxpayers.

For inquiries about the Seal of Honesty (SoH) Certification Program, e-mail us at info@sealofhonesty.ph or call (+63) 622 7720.

The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the M.A.P.

Raymond A. Abrea, popularly known as the Philippine Tax Whiz, one of the 2015 The Outstanding Young Men of the Philippines (TOYM), an Asia CEO Young Leader of the Year, and founder of the Abrea Consulting Group and Center for Strategic Reforms of the Philippines (CSR Philippines). He currently serves as Adviser to the Commissioner of Internal Revenue on tax administration reform in promoting a culture of integrity and honesty in paying taxes.

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