P77-B tax reform proposal up for Duterte perusal

MANILA, Philippines – A P77-billion tax reform package is being handed over by the Aquino administration to the next government which earlier vowed to prioritize tax amendments.

The amount corresponds to net revenues during the plan’s first year, which will see personal and corporate income tax rates slashed, value-added tax (VAT) increased and additional products charged with higher excise levy.

According to the Department of Finance, the plan includes gradually lowering the highest personal and corporate income tax levies to 25 percent and restructuring brackets to four, increasing VAT to 14 percent and charging excise taxes on diesel and cooking gas.

It also aims to increase existing excise levy on gasoline to P10 per liter from P5. Lifting the bank secrecy law and exempting revenue employees from salary standardization were also proposed.

Sought for comment, Benedict Tugonon, president of industry group Tax Management Association of the Philippines, said it is a pity that DOF only made the proposal now.

“Why only now? Why didn’t the department push this during the Aquino administration?” Tugonon said in an e-mail.

“We have always taken the position that tax reform in the Philippines is long overdue,” he added.

Incoming president Rodrigo Duterte included tax reform among his eight-point economic agenda after President Aquino rejected legislative moves last year.

For Bureau of Internal Revenue Commissioner Kim Henares, the DOF proposal only reflects “what we have been saying all along about a holistic approach.”

Under the plan, personal and corporate income levies will be reduced over six years from a maximum of 32 percent and 30 percent, respectively.

Lowering of rates will be only be triggered by a rise in tax effort up to 16.5 percent. As of the first quarter, the figure is at 13 percent.

Tax brackets will be lessened to just four from current seven to simplify tax payments. Those earning P1 million or less will be automatically exempted from income tax.

Combined revenue losses is pegged at P222 billion in the first year, DOF data showed. Finance director Elsa Agustin said this will be partly offset by P132 billion in additional excise tax revenues.

“Our plan is to charge more products with excise tax, including diesel, at P6 per liter, and increase those which have it already,” Agustin said in a phone interview.

After the first year, excise tax rates will be programmed to rise four percent every year. VAT, meanwhile, will be raised to 14 percent from 12 percent for additional P162 billion in revenues.

A much-delayed rationalization of fiscal incentives is seen to contribute P5 billion on the first year.

Tax administration measures such as lifting bank secrecy law for tax purposes will also help in boosting collections, although DOF did not provide estimates for it.

“Tax administration gets difficult as you climb upwards. There are less and less room for improvement,” Henares said.