The study presents the advantages and disadvantages of introducing a Bank Debit Tax (BDT) as a temporary and quickest possible means of generating revenue for the government. The proposed BDT shall be imposed once the National Government (NG) deficit reaches 3.5% of Gross Domestic Product (GDP) for a period of at least six (6) months. It shall be applied on bank withdrawals from checking, savings and term accounts at a rate of 0.2% on the amount withdrawn.
The study also discusses the performance of the BDT in some countries that have adopted it, notably in some Latin American countries, India, Australia, Pakistan, Papua New Guinea and Vanuatu. It presents the different factors affecting BDT’s performance such as the tax rates, manner of its imposition as well as the exempt transactions in order to gauge the effects of levying such kind of tax.
The study notes that based on a CPBO study, the proposed BDT would yield an estimated P 28.40 billion revenue based on the value of cleared checks of P 14,200.72 billion from January to October 2005. On the other hand, based on a study conducted by the International Monetary Fund (IMF), the use of debit taxes results in significant financial disintermediation which could be difficult to reverse, thus, debit taxes should be avoided.
The study opines that while there are numerous reasons for the favorable endorsement of the proposed BDT, there are also irreversible negative consequences that far outweigh the benefits and positive revenue to be generated. The proposed BDT would: (a) further discourage savings; (b) impose another heavy burden on depositors as there is already a 20% final withholding tax (FWT) on interest income, a documentary stamp tax (DST) of P 1.50 per check and several bank fees and charges aside from a high amount of maintaining balance for both savings and checking accounts; and (c) contribute to significant financial disintermediation through the substitution of bank-intermediated transactions to cash and off-shore transactions as well as shifting towards other products outside the banking system, e.g., stock market, bond transactions, investment funds, etc.
