Sonny Dominguez on tax reform: ‘It’s now or never’

The other day, Sec. Sonny Dominguez told me that the comprehensive tax reform program (CTRP) proposed by the Department of Finance is very critical to the success of the “Dutertenomics” agenda of the administration which seeks to transform the economy into one that is pro-poor and inclusive.

Last May, Congress overwhelmingly approved with a vote of 246-9 House Bill 5636 (also known as the Tax Reform Acceleration and Inclusion Act or TRAIN) which outlines the first package of the CTRP. Supporters of the tax reform package are hoping the senators would also follow suit and approve the proposed measure that is expected to generate at least P130 billion in revenue.

The last time the country undertook tax reforms was in 1997 when the National Internal Revenue Code was passed, It set the income tax system and the current tax brackets, which many say is very outdated and is much higher than what is imposed by other Asian countries.

This was underscored by Secretary Dominguez who refuted allegations that the CTRP would only benefit the rich. On the contrary, the first package seeks to reduce income tax rates, such that those earning P250,000 or less per year would not be taxed anymore – thus empowering the poor and the middle class. Under the current system, only those earning P10,000 or below per month (or a P120,000 annual income) are exempted from paying income taxes.

As explained by Sonny, the reforms would align our tax rates with our Asian neighbors, which in turn could make the Philippines attractive as an investment destination. The government has also embarked on an ambitious $160-billion infrastructure program – with the government’s mantra of “Build Build Build” – that is seen to speed up economic growth and usher in the “golden age of infrastructure.” But obviously, funding is needed to undertake the major infra projects that will ultimately generate more jobs for Filipinos as these will bring in more investments, not to mention attract more tourists.

If one could recall, the economic boom in the United States began when the US government embarked on large infrastructure projects, ushering in America’s “golden age” of economic growth, with the middle class benefitting – although growth was almost evenly distributed across social classes. The same can be said of China which began experiencing impressive economic growth when it undertook massive infrastructure projects more than a decade ago – turning it into the economic powerhouse that it is today.

The Philippines is already displaying impressive economic growth, recording 73 consecutive quarters of GDP growth. The World Bank projects the country’s economic growth to remain robust, saying it sees the economy expanding to 6.8 percent this year and 6.9 percent for 2018. 

According to lead WB economist for the Philippines Birgit Hansl, a critical factor in sustaining the country’s growth momentum would be the support for higher levels of investment. “The government’s ability to realize its infrastructure spending agenda will determine if the Philippines can achieve the growth target of 6.5-7.5 percent for 2017,” Hansl said.

Even giant Dutch banking firm ING has positive projections for the country’s growth trend under the Duterte administration – but stressed that the success of the government in ushering in a “golden age of infrastructure” would bring about more upside to GDP growth vis-à-vis the government’s 7-8 percent target.

Socioeconomic Planning Secretary Ernie Pernia disclosed earlier that government is targeting an economic growth rate of 6.5-7.5 percent for 2017 and 7-8 percent from 2018-2022.

Secretary Dominguez says now is the best time to implement the tax reform program because President Duterte is enjoying the highest satisfaction rating ever – described as record high – in the latest survey results released by the Social Weather Stations.

In a survey conducted from June 23 to 26, the President received a 78 percent satisfaction rating. What is significant is that the President’s satisfaction rating even spiked up after he declared martial law in Mindanao, which goes to show that people really trust him and believe in what he is doing to keep this country safe from terrorists.

Even the international community is coming to terms with the President’s decision, as seen in the statement of support from US Ambassador Sung Kim who said that the US is proud to support President Rody’s determination to secure and rebuild Marawi City, adding that they stand by the troops and the Armed Forces of the Philippines in the courageous fight against terrorism to keep this country safe.

Australia has also thrown in its support by sending aircraft to conduct surveillance flights over Marawi, while Indonesia and Malaysia inked an agreement with the Philippines for the conduct of joint maritime patrols to prevent terrorists from coming in through the waters of Sulu and Sulawesi.

Some people are trying to downplay the survey results, pointing out the net satisfaction rating of the President is “only” “68 percent because 12 percent of respondents said they were not satisfied, while 10 percent remains undecided. Nevertheless, 78 percent is a number that can’t be ignored or brushed aside because it still proves that a great majority of people trust and believe the president – whose economic team headed by Sonny Dominguez are working hard to steer this country towards sustainable growth that is also all-inclusive. 

Like I told Sonny – if the administration pulls off its ambitious Dutertenomics agenda or accomplishes even 50 percent of what it has set out to do, then President Duterte may yet come out as the best president this country has ever had. Clearly, the tax reform program must be approved, because the momentum is already here. In the words of Secretary Dominguez: It’s now or never.

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