, February 21, 2005
 (STAR) By Des Ferriols  -  The Department of Finance (DOF) has raised the possibility of an increase in corporate income tax following a proposal to reduce the personal income tax particularly for the lowest bracket.

The DOF said that it will support the Senate initiative to reduce income taxes for the lowest bracket only if there will be a corresponding adjustment in the highest bracket of personal and even corporate income taxes.

Finance Secretary Cesar Purisima told reporters that corporate income taxes might even be adjusted from 32 percent to as much as 35 percent to make up for the loss of revenues when income taxes are adjusted in the lower brackets.

The debate was an offshoot of the failure of the Arroyo administration to overhaul the excise tax on cigarettes and alcohol, making it necessary to adjust other taxes in order to generate more income.

According to Purisima, he could agree on the concept of offsetting the impact of the two-point adjustment in the value added tax (VAT) but warned Senate that offsetting one tax with another was difficult since the collection process and efficiency was not the same.

"It is hard to offset an income tax against VAT because they are not the same in terms of ease of collection," Purisima said. "There is no way to guarantee yields," he added.

Purisima said the DOF has started "running the numbers" but there was no proposals yet on actual tax rate adjustments for any of the structures discussed in the Senate.

"Iím just saying if we do agree to lower the tax at the bottom, then we will have losses from income tax collection and there must be a recovery mechanism somewhere else because we can not afford to lose revenue," Purisima said.

"Basically, what I am saying is I donít want to lose anything on income tax collection," Purisima stressed. "If we lose from the bottom, we must adjust the top, both corporate and individual level."

Purisima admitted that the emerging proposals would be controversial but explained that he intends to make sure that the proposed legislation would addresses revenue requirements while minimizing the impact on low income households.

"At the same time we donít want to discourage companies from doing business in the country," Purisima said.

According to Purisima, the numbers being discussed by Senator Ralph Recto involved some adjustment that could include exemptions for households with per capita income below P120,000.

On the other hand, there could also be an adjustment in the corporate income tax from the current 32 percent to as much as 35 percent. But Purisima said such numbers would have to run through simulations before actually being considered.

Officially, Purisima said the DOF was backing the proposed increase in the valued-added tax (VAT) rate from 10 percent to 12 percent.

"I think this is still the best solution for the simple reason that the 12 percent will be applied on items already covered by VAT which is a base that has already been proven as collectible," Purisima said. The proposal involved a 20 percent reduction in income tax rates.

Reported by: Sol Jose Vanzi

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