Solon pushes for Simplified Net Income Taxation Scheme (SNITS)

ANOTHER lawmaker is batting for the adoption of a Simplified Net Income Tax Scheme (SNITS) that will limit the allowable business deductions from gross revenues for self-employed individuals and professionals which will reduce corruption and increase government’s tax take.

Rep. Giorgidi Aggabao (4th District, Isabela), a Vice Chairman of the House Committee on Ways and Means, said the taxes on income is a well-recognized exaction because of its contribution to support the government. However, he said the law allows the taxpayer to reduce his taxes by permitting him certain deductions.

“This is an area where discreditable evasion of the taxing laws occurs and where fraud on the revenue of the government happens,” Aggabao said.

Aggabao said his proposal, House Bill 3992 seeking to adopt the SNITS for individuals engaged in trade or business, and practice of profession, has three objectives. First, it limits through specific statutory provisions, deductions to gross income to only eight allowable expenses.

Second, the proposal aims to eliminate the sui generis deduction of “ordinary and necessary trade, business or professional expenses” such as traveling expenses, entertainment, amusement, recreation expenses
and other wide variety of expenses that have spawned problems of drawing an exact line of demarcation between legitimate business expenses and personal expenses.

Third, it seeks to eliminate losses, bad debts, pension trusts and premium payments on insurance which are basically personal expenses according to Aggabao.

Under the present law, he said deductions from gross income are permitted for 10 expenses namely: ordinary and necessary trade, business or professional expenses; taxes; losses; bad debts; depreciation; charitable contributions; research and development; pension trusts; and premium payments.

Under his bill, deductions from gross income shall be allowed for only eight expenses namely: salaries and wages; supplies and utilities; rentals; interests; taxes; depreciation; research and development; and charitable contributions.

The Optional Standard Deduction shall be maintained under the bill. However, instead of 10% of gross income, the proposal seeks to hike the rate to 20% of gross income.

“We hope that simplifying the taxes for self-employed individuals and professionals will boost the tax take of the government,” Aggabao said.

In HB 3992, Aggabao proposed the amendment of Sections 22, 24 and 34 of the National Revenue Code of 1997, as amended, for the implementation of the SNITS.

Earlier, Finance Undersecretary Gil Beltran said the enactment into law of the SNITS and three other tax measures could generate an estimated P67 billion in revenues for the government. These revenue-enhancing measures are: excise tax reforms for tobacco, alcohol and petroleum products, P40 billion; rationalization of fiscal
incentives, P10 billion; SNITS, P5 billion; and the packaged increase in the value-added tax (VAT) rate and lowering of the income tax, at least P12 billion.

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