Toward a Responsible Business Taxation in the Philippines from a Practitioner’s Eye

Abstract

The Tax Reform for Acceleration and Inclusion (TRAIN) Law, Republic Act No. 10963, which was signed into law on December 19, 2017, by President Rodrigo Duterte, reduces the taxes that small business owners are required to pay. The TRAIN Act modifies our prior tax system. The principal features of the tax reform are a decrease in the personal income tax and an increase in the consumption tax. Individuals whose taxable income does not exceed P250,000 per year are exempt from income tax. The exemption for those earning the minimum wage is retained in the revised tax system. The TRAIN Act is intended to generate revenue to achieve the 2022 and 2040 visions of the Duterte administration, namely the eradication of extreme poverty, the establishment of institutions that provide equal opportunities to all, and the attainment of the status of a high-income nation. It also seeks to make the tax system simpler, more equitable, and more efficient.

The Tax Reform Package 2 that President Rodrigo Duterte signed into law on March 26, 2021, via the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and Republic Act No. 11534, went into effect on April 11, 2021. Under the CREATE Act, the corporate income tax (CIT) rates for domestic corporations were reduced from 30% to 25%, retroactive to July 1, 2020. The CIT will be reduced by an additional 1% per year for the next six years and eventually reach 20% beginning in 2027. As a response to the COVID-19 pandemic, this bill will help both domestic and foreign companies that do business in the Philippines.

With these two tax reform packages, taxpayers and businesses are relieved of the burden of paying high tax rates and can redirect funds to other operating expenses and the improvement of the business’ current situation. In my accounting career, I served as a bookkeeper and tax agent for various businesses. I am exposed to the various obstacles these businesses face. I also serve as a consultant and financial advisor to my clients. As a businesswoman myself, I understand their challenges, but in business, the integrity of an entrepreneur also matters, such as the way you interact with clients and customers, compliance with government laws and regulations, and your Christian accountability. But I’ve seen a lot of business owners and entrepreneurs make mistakes with their accounting and taxes. Entrepreneurs and businesses are found engaging in improper practices such as inaccurate accounting and low tax compliance. The majority do not wish to report actual sales and receipts, resulting in a low level of tax compliance. This means that the government loses money instead of making money to pay for goods and services for the people.

The Bureau of Internal Revenue does not qualify or accredit many bookkeepers who provide services to various types of businesses. I believe that BIR is aware of them but does nothing to regulate them. Due to the rigorous screening and requirements, there are a limited number of licensed public practitioners across the nation. Public accountants are carefully checked out by the Board of Accountancy and other agencies like the Bureau of Internal Revenue, the Cooperative Development Authority, and the Securities and Exchange Commission. To be accredited by all these agencies, we must pass all these screenings and submit all the necessary documentation. We work hard in college to complete our accounting course, pass the board exam, and endure all the accreditations required not only by the Board of Accountancy but also by all other agencies requiring accreditations to practice; in fact, we have become the tax collection arm of the government, and finally, get rid of fly-by-night bookkeepers and stop more people from practicing public accounting by giving them help. But the question of accounting practitioners is, “Why is our government also silent about the illegal practices of these fly-by-night bookkeepers and fixers, who should not be practicing in the first place?”

If all entrepreneurs and companies, from small to large, conducted business ethically, issued receipts to all clients and customers, recorded actual sales and receipts, and complied with tax laws, then our country would be a haven for the less fortunate, receiving government subsidies, more infrastructure, and fewer loans from large countries and the World Bank. And we do not require foreign company investments. And finally, eliminate fly-by-night bookkeepers and encourage more public practitioners by providing them with support.