Net P41-B gain seen from proposed tax reform

MANILA, Philippines – The proposed tax revenue package of the Duterte administration is seen yielding a net revenue gain of P41 billion, data presented by the Department of Finance (DOF) to lawmakers showed.

Finance Secretary Carlos Dominguez told Congress during the first day of briefings for the proposed P3.35 trillion 2017 national budget the Philippines has among the highest tax rates in the region but also has the narrowest tax base.

“This is a condition tax reform should reverse. We should aim to bring down tax rates while at the same time broadening tax base,” Dominguez said.

The Bureau of Internal Revenues (BIR) slaps a 30 percent tax on domestic corporations while individuals are levied a tax rate of between five and 32 percent depending on their taxable income.

Computations made by the Finance department showed the national coffers would have to forego P173.8 billion to make the country’s personal and corporate tax rates at par with neighboring countries in the region.

“Foregone revenues in the lowering of the income tax rates is approximately P139 billion and the lowering of the corporate income tax rates will bring down our revenues by approximately P34.8 billion,” Dominguez said.

On the other hand, gains from reforms such as the lifting of some exemptions from the payment of 12 percent value added tax (VAT) enjoyed by senior citizens as well as persons with disabilities (PWDs), the imposition of soda tax, and the rationalization of fiscal incentives would yield P214.8 billion in additional revenues.

The removal of VAT exemptions for senior citizens and PWDs except for food, medicine and education alone would raise P163 billion in additional revenues while the tax on sugary and fatty foods to encourage consumers to buy healthier food would raise P18 billion.

Likewise, the planned rationalization of fiscal incentives would help the government save around P33.8 billion.

According to Dominguez, the DOF is also looking at proposing the imposition of higher excise tax on fuel products that has been pegged at P4.35 per liter since 1997.

He explained the amount should roughly be increased by P5.65 per liter for a total excise tax of P10 per liter if inflation is factored in.

The initial estimate of the finance department shows transport fares would increase by P1 as a result of the higher excise tax on fuel products.

To compensate, Dominguez said the Duterte administration would pursue subsidies such as the conditional cash transfer under the Pantawing Pamilyang Pilipino Program (4Ps).

“As a general rule, the rich will have to pay more in taxes while the vulnerable sectors of society will be protected through higher targeted subsidies such as the CCT. We will ensure that the ordinary workers and bottom 50 percent of households will be fully protected with social development programs,” he said.

He reiterated the additional tax burden would be offset by the reduction in income and corporate tax rates.

Under its 10-point socioeconomic agenda, the Duterte administration intends to implement a comprehensive tax reform package that includes lowering personal and corporate income taxes and simplifying tax processes, while accelerating spending on infrastructure and investments in human capital.

Dominguez said the tax reform package is designed not just to raise revenues but support inclusive growth.

“The next six years can either continue along the path of high economic growth but high socio-economic inequality, or chart a different path towards shared prosperity that will uplift all,” he said.