MANILA — The Bureau of Internal Revenue (BIR) has collected nearly P2 trillion in the first seven months of the year, putting it ahead of target and on track to meet its full-year goal — even as the government prepares a major package of tax relief that could reduce revenues.
Preliminary BIR figures show collections from January to July reached P1.998 trillion, about P100 billion or 5.16 percent higher than the same period last year.
Collections were also P9 billion above the BIR's target for the period, according to Commissioner Charlito Mendoza.
Mendoza said the BIR remains “very much on track” to meet its full-year collection target.
The agency's latest full-year target was lowered by the Development Budget Coordination Committee from P3.43 trillion to P3.393 trillion. But the stronger collection performance comes as the administration prepares to give taxpayers more room to spend and businesses more room to operate.
The proposed tax-relief package includes raising the annual personal income-tax exemption threshold from P250,000 to P350,000, while removing the 2-percent minimum corporate income tax, or MCIT, for qualified micro and small businesses.
The government estimates the two measures could result in about P66 billion in foregone revenues.
Mendoza said the worker tax cut could benefit around 3 million Filipinos, including 1.2 million who would become exempt from income tax.
Fixing corporate income tax
But the corporate-tax change addresses a different problem. Under the current MCIT system, qualifying corporations can be required to pay a minimum tax based on gross income even when their actual taxable income is very low — or when they are breaking even or losing money.
Mendoza said the regular tax calculation, after allowable deductions, can sometimes produce a tax liability that is lower than the 2-percent MCIT.
“There are times when there is no tax that the taxpayer should be paying, or it is smaller, or they are losing money or they are just breaking even, and yet under the minimum corporate income tax regime, they still pay 2 percent,” Mendoza said.
He called the proposed reform “very equitable.” The Department of Finance estimates that more than 78,000 micro and small enterprises could benefit from the removal of the MCIT.
The proposal has also drawn support from business groups, with the Negros Oriental Chamber of Commerce and Industry saying the business community has long pushed for tax relief for MSMEs to help them expand and remain competitive.
The distinction is important for the government's fiscal position: unlike the personal income-tax cut, the MCIT reform is designed not simply to lower a tax rate, but to prevent a minimum tax from being imposed when a qualifying business has little or no actual taxable profit.
Still, the government will need to replace part of the revenues that will be lost from the broader tax-relief package. Mendoza said the additional take-home pay from workers could generate some revenue of its own because consumers are likely to spend the money on food, school supplies and other goods and services.
That spending could generate indirect taxes and potentially higher income-tax collections from businesses benefiting from stronger demand.
“But that may not suffice to offset the projected revenue losses,” Mendoza said.
That is where higher excise taxes come in.
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Sugary drinks, vapes, wealth
Mendoza said the government is considering higher taxes on sweetened beverages, alcoholic products and e-cigarettes or vapes, while also looking at a possible wealth tax covering assets such as private aircraft and vessels.
Among the proposals under discussion is an excise tax of P20 per liter on sugar-sweetened beverages and P40 per liter on beverages made with high-fructose corn syrup.
Whether sweetened drinks sold on-premise, such as beverages from coffee shops, would also be covered remains open to congressional deliberation, Mendoza said.
For cigarettes, the BIR itself acknowledges a potential unintended consequence: Mendoza said higher taxes on legitimate cigarette products could push consumers toward the illicit market.
System loss
The tax debate also extends to electricity bills: President Ferdinand Marcos Jr. has called for the removal of the VAT on systems-loss charges as part of efforts to bring down electricity costs.
Mendoza said the BIR cannot simply remove the VAT administratively because systems-loss charges are currently included in electricity distributors' gross receipts.
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“The systems loss charges are being paid by the consumers. And since they are being paid by the consumers, they form part of the distributors' gross receipts,” Mendoza said.
“That is why they are also subject to VAT.”
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If the government wants to remove the VAT on systems-loss charges, “we really need a law,” Mendoza said.
The BIR has separately clarified that certain pass-through charges that do not form part of a distributor's income or gross receipts are not subject to VAT. Mendoza said the agency issued a revenue memorandum circular specifically clarifying that treatment.
The conflicting pressures illustrate the fiscal balancing act facing the government.
On one side, the BIR is collecting more than expected — nearly P2 trillion in seven months and P9 billion ahead of its target for the period.
On the other, the administration wants to reduce taxes for workers and small businesses, while potentially cutting VAT on a component of electricity bills.
To make up the difference, government is looking toward higher excise taxes, possible wealth taxation and better tax administration.
Mendoza said the BIR is also trying to increase collections without simply putting more pressure on compliant taxpayers. Around 98 percent of the BIR's tax collections come from voluntary compliance, he said.
The agency is therefore simplifying processes, clarifying rules and digitizing transactions to make it easier for taxpayers to comply.
“While we want to collect efficiently, we should also be collecting fairly,” Mendoza said.