DOF lays out game-changing reforms

MANILA, Philippines - The past 12 months have been crucial for the government as it started to lay out game-changing reforms that would enable the Duterte administration to deliver its promise of change.

Both the Department of Finance (DOF) and the Department of Budget and Management (DBM) have set out their reform agendas that are considered pivotal in helping the government accelerate infrastructure development and improve investments in human capital, ultimately driving economic growth to new heights and significantly improving the quality of life of Filipinos.

Improved fiscal policies and strengthened administrative measures were introduced, aimed to put more money in state coffers and bankroll the government’s ambitious expenditure program, while budget reforms were also implemented, preventing underspending and ensuring that government funds are spent wisely for their respective programs.

As early as September 2016, three months into the term of the Duterte administration, the DOF submitted to Congress the first package of the Comprehensive Tax Reform Program (CTRP) which aims to simplify the country’s tax system and improve tax collection efficiency.

“Within less than 90 days (since the start of the administration), we were able to submit the tax reform bill (to Congress),” Finance Secretary Carlos Dominguez said in an interview.

According to Dominguez, the CTRP is an important measure which would help guarantee a steady revenue flow for the Duterte administration’s unprecedented public spending program to support the government’s economic agenda and reduce poverty.

“To sustainably finance the massive investments in infrastructure and in the people, tax policy reform will be crucial alongside tax administration and budget reforms. The tax reform seeks to achieve a simpler, fairer, and more efficient tax system characterized by lower rates and a broader base, to encourage investment, job creation, and poverty reduction,” Dominguez said.

President Duterte also certified the CTRP as a priority bill, emphasizing its benefit in providing sustainable financing for the government’s investments in infrastructure and the public.

The bill finally hurdled the House of Representatives last May 31 after being consolidated with other tax reform measures to create House Bill 5636, or the Tax Reform for Acceleration and Inclusion Act (TRAIN).

The key features of HB 5636 include the lowering of personal income tax rates indexed to cumulative inflation every three years, unified estate and donor’s taxes at a flat rate of six percent and broadening the tax base by removing special laws on VAT exemptions.

It also includes provisions on the increase of excise tax for petroleum products, except liquefied petroleum gas (LPG) used as feedstock, at a staggered basis from 2018 to 2020 but with no indexation to inflation and a five-bracket excise tax structure for automobiles with a two-year phase-in period for the tax increases.

Additional measures, namely the excise tax on sugar-sweetened beverages, estate tax amnesty and motor vehicles users charge were also included in the final version of the bill.

However, as many of the original provisions of the bill were watered down, the projected revenue to be generated from the bill also became lower.

Latest estimates from the DOF showed that the bill, if implemented in its form, will generate P133.8 billion in additional revenue in 2018, lower than the P157.2 billion that will be generated with the original provisions plus the additional measures included in the bill.

As a result, the 2018 budget to be proposed to Congress has been lowered to P3.77 trillion from the original proposal of P3.84 trillion. Despite this, the country’s economic managers are still optimistic the economy would grow within the target of seven to eight percent in 2018.

The DOF, however, remains confident the tax reform bill would be implemented in its original form after going through the Senate and the bicameral committee.

“The House passed the tax reform bill and now it’s in the Senate. So it’s a continuing struggle,” Dominguez said.

Administrative reforms

Dominguez also highlighted the DOF’s initiatives to roll out administrative reforms that would make tax collection more efficient and make investments in the Philippines more attractive to businessmen.

“We were the only agency who set up an anti-red tape department and we’ve really moved forward with that,” Dominguez said.

“We also have enhanced revenue collections, dividends, also intensified tax monitoring and enforcement, anti-smuggling enforcement and anti-informal lending,” he added.

According to data from the Bureau of the Treasury, government revenue (including tax and non-tax) as of end-May rose eight percent to P996.5 billion from the P925.4 billion recorded in the same period last year.

Dominguez also cited the joint efforts of the Bureau of Internal Revenue and the Bureau of Customs in going after the big tax evaders, citing in particular the case of Mighty Corp.

“If you look at it, the coordination between the BOC and the BIR have yielded us potentially the largest collection of taxes from an individual at one time ever in history. The team works together well, and we have been able to nail a real big fish,” Dominguez said.

Faster project implementation

In the area of budget execution, Budget Secretary Benjamin Diokno said the DBM has initiated a change in the culture and mindset of state agencies to speed up project implementation.

According to Diokno, one of the most important paradigm shift pushed by the DBM is the implementation for a one-year effectivity of the General Appropriations Act.

“We are trying to impose a one-year effectivity of the General Appropriations Act instead of two years. It will remove the culture where agencies relax once they obligate the budget. Now, they know that if they don’t implement it within the year, they will lose the budget,” Diokno said.

He said this measure, among others, ended underspending in the first half. “That, to me, is a concrete measure of our success,” Diokno said.

According to data from the Treasury, the government incurred a budget deficit of P63.6 billion in the first five months. This means expenditures, which reached P1.06 trillion from January to May outpaced revenue at P996.5 billion.

The total disbursement of P1.06 trillion during the period also accounted for 36 percent of the P2.909 trillion expenditure program in 2017.

While the one-year validity of appropriations is being implemented, Diokno said the DBM wants to institutionalize this measure through the passage of the Budget Reform Bill in Congress.

Diokno said the passage of a budget reform law is expected to increase the utilization of budget, and ultimately, result in improved delivery of service to the public.

“The changes initiated by the bill will impact not on just the way we prepare, implement and report the budget, but will more importantly allow us to achieve our goal of a prosperous, peaceful, safer and healthier nation,” Diokno said.

Among the main components of the bill include the shift from obligation- to cash-based budgeting, the shift from a two-year validity of appropriations to one year, the introduction of an extended payment period and the establishment of a unified accounts code structure, among others.