MANILA, December 19, 2003  (STAR) By Des Ferriols - The International Monetary Fund has warned the Arroyo administration not to cave in to proposals for a new tax amnesty, saying that similar programs in the past have a had harmful impact on revenues.

The IMF has just concluded its post-program monitoring (PPM) review and made policy recommendations, even as it expressed satisfaction about the government’s efforts to contain its fiscal crisis.

"This reflects significant efforts to strengthen tax and Customs administration but also substantial expenditure restraint," the IMF said in its report.

The near-term challenge, however, was to deepen fiscal consolidation in 2004, the IMF said.

"Front-loading fiscal consolidation next year would help the government adhere to its plan to balance the budget by 2009," said IMF chief of mission Masahiko Takeda. "This will require continued vigilance in tax administration and spending."

While struggling to get Congress to pass its key revenue measures, Takeda said the government should resist proposals for new tax amnesties "given the harmful impact that repeated amnesties have on incentives for taxpayer compliance."

"The IMF is generally cautious about amnesties and our recommendation was based on this basic caution," Takeda said.

According to Takeda, tax amnesty programs have pre-requisite infrastructures, particularly in the generation and organization of information. "Unless carefully designed and supported with strong information infrastructure, tax amnesty programs could give rise to disincentives to taxpayers," he said.

"One can make a case that it will strengthen tax administration and I am sure that this is possible under the administration of [internal revenue commissioner Guillermo] Parayno," Takeda said. "But at this point, it is still unclear how the adverse effects could be prevented."

Even within the Arroyo administration, officials are at loggerheads over how to implement the amnesty program amid loud and aggressive lobbying by business interest groups, particularly the Filipino-Chinese community.

Despite the reservations of the Department of Finance, Malacañang has certified the proposed tax amnesty bill as an urgent measure as the Arroyo administration added more sweeteners into its reelection bid in the 2004 presidential elections.

The tax amnesty bill has already supplanted at least three other urgent revenue measures that have been approved by the bicameral committee, but have since been recalled by Congress for more deliberations.

Takeda said, however, that the failure of Congress to pass the revenue measures on time did not mean that the government could junk the initiative altogether. "Ultimately, the government will have to take some very painful measures in order to provide the solution to its problems," he said.

The tax amnesty bill is pending for approval by Congress but the DOF held back its recommendation for Malacañang to classify it as an urgent measure despite the strong lobby of the Filipino-Chinese community.

The proposed tax amnesty bill would allow delinquent taxpayers to declare their statement of assets, liabilities and net-worth (SALN) and then may pay a minimal amnesty tax for taxable year 2001 and prior years.

If they qualify for amnesty, the bill proposes to give delinquent taxpayers immunity from civil, criminal or administrative penalties under the National Internal Revenue Code (NIRC), the Revised Penal Code and the Anti-Graft and Corrupt Practices Act.

In its position paper submitted to the Senate ways and means committee, the DOF said it was supportive of the provisions that required the submission of the SALN since this would flush out delinquent taxpayers once and for all. Ultimately, the DOF said this will enable new individual and corporate taxpayers to surface and be added to the tax rolls, expanding the existing tax base and improving future revenue collections.

However, the DOF said it was opposed to the major provision giving amnesty even to taxpayers with pending cases under the Anti-Graft and Corrupt Practices Act, as well as those under the jurisdiction of the Presidential Commission on Good Government.

The DOF also wants the tax amnesty program to exclude and disqualify those with pending cases under the Anti-Money Laundering Law as well as cases involving felonies of fraud, illegal exactions and transactions, malversation of public funds and property.

The DOF also wanted some adjustments in the proposed amnesty tax applicable on all unpaid internal revenue taxes imposed by the government for 2001 and prior years. The bill proposes to base the tax on the net-worth as of Dec. 31, 2001 declared by the filer in the SALN.

For individuals, the bill proposes to impose an amnesty tax of two to three percent and three percent for corporate taxpayers. But the DOF said the rate should be at three to four percent for self-employed individuals, about three to four percent for small to medium corporations and nine percent for large corporations.

Reported by: Sol Jose Vanzi

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