Finance Secretary Carlos Dominguez III said the current rates of interest income taxes favor the rich and discriminate against low-income depositors who have to cope with high tax rates.

The Department of Finance (DOF), he said, is now studying how best to correct the disparity in interest income taxes for peso deposits between rich and low-income depositors and harmonize current rates for dollar deposits.

As part of the DOF-proposed comprehensive tax reform plan, Dominguez told legislators at a recent public hearing that, “We propose to harmonize all capital income taxes regardless of currency, maturity and type towards 10%.”

“This way, the poor pay less on the interest income and the rich pay more,” he said during a recent hearing of the House of Representatives’ committee on ways and means on the DOF-proposed tax reforms. “

“Specifically, we propose to reduce the tax on interest income from peso deposits to 10%,” he told the committee chaired by Rep. Dakila Carlo Cua. “Meanwhile, we propose to harmonize all capital income tax rates to 10%.”

Domingo said that “for the capital income tax reform packages, we will lose around a billion pesos but gain, again, with the positive impact of simplicity, equity and efficiency.”

Earlier, the finance secretary noted that depositors with minimal peso investments are normally taxed as high as 20 percent while rich depositors parking their millions of pesos in banks for much longer get to do it tax-free, depending on how long they keep their money in the banking system.

Stressed Dominguez: “Small depositors are burdened with high tax rates because they save less and cannot keep their money in banks for a long time, while rich depositors, who park their money in banks because they do not have an immediate need for it, are not taxed. Is that fair?”

The interest income from peso deposits in accounts such as savings deposits, time deposits, special deposit accounts, and common or individual trust funds with maturity periods of less than three years are taxed 2o percent.

Deposits for three years to less than four years are taxed 12 percent, while those kept for four years to less than five years are taxed 5 percent.
For deposits maintained in banks for five years or more, which mostly only the rich can afford to do, the tax is zero.

Foreign currency deposits and deposit substitutes are taxed 7.5 percent while interest income from bonds get a 20 percent tax.

Dominguez said correcting the tax rate disparities in interest income deposits form part of the tax policy reform program that the DOF is now proposing to raise revenues and broaden the tax base.

At the House ways and means committee hearing, Albay Rep. Joey Salceda gave his all-out support to the DOF’s comprehensive tax program, saying this plan is much better than the one presented by the previous administration.

“Sir, you have my ardent support, and I’m sure my chairman will have the same…. I would like to congratulate you for your latest tax reform measure. It’s a very good measure,” Salceda told Dominguez during the committee’s organizational meeting.

Dominguez thanked Salceda for his support, saying that it was “very heartening” coming from the congressman, a former Albay governor who is considered an expert in the field of economics.

Although Salceda is a neophyte congressman in the 17th Congress, he had previously served the legislature in the 11th Congress, holding the chairmanship of the Committees on Trade and Industry and the vice chairmanships of the Ways and Means and Economic Affairs committees.

Salceda, showing his enthusiasm for the DOF’s tax reform plan, even suggested during the hearing that it be renamed “Fiscal Roadmap to Acceleration and Inclusion” to highlight its primary goal of raising revenues for the government’s accelerated spending program on infrastructure, human capital and social protection for the country’s vulnerable sectors, while reducing income tax rates to put more money in the pockets of wage-earners plus low- and middle-income taxpayers and further stimulate economic growth.

At the same briefing, Dominguez told the legislators that the DOF has “put the packages together so that there will be a balance between revenue-eroding measures and revenue-enhancing measures.”

Dominguez told the House panel that the final tax reform plan that will be presented to the Congress this month will “comprise four packages. Each of the packages will correspond to a bill that balances policy trade-offs. Other packages may be considered as needed.”