Back to the Grindstone

As the last of the visitors leave, it’s back to the grindstone for the nation. The most pressing unfinished business for government would be the passage of the first package of the Comprehensive Tax Reform Program (CTRP) aka Tax Reform for Acceleration and Inclusion (TRAIN).

Finance Secretary Carlos “Sonny” Dominguez III had hoped that by September the Senate would have passed its version of the bill before going into recess middle of October, and the bicameral conference to conclude in November.

The ultimate goal was for the President to sign the bill into law by Dec. 15, and implement the first package by Jan. 1, 2018.

Obviously, things are not working out as planned. At the start of the month, the Senate had hoped to pass its version of TRAIN during meetings to be held right after the ASEAN Summit, and more importantly, after it approves the P3.767-trillion national budget.

Work on the budget was supposed to be held during the three-day ASEAN meet, but had to be moved to a later still undisclosed date because of security issues. As far as our esteemed senators are concerned, no other work – yes, even TRAIN – should come before the budget deliberations.

Failure to pass the 2018 budget before the year ends would mean having to survive on a reenacted budget for the country next year.

There is still hope, though, that Dominguez’s timetable will be met. But that’s very slim. Assuming the budget bill passes next week, this leaves barely a fortnight for bicam deliberations on the TRAIN bill, assuming a quick passage by the Senators.

Interestingly, if the bill containing the first package of tax reform measures will be delivered to Malacañang before the year ends, the President will have to go through its provisions with the printer ink needing to dry on paper that’s still warm.

Personal income tax

For the bicameral discussions to proceed without too much fuss, the Senate and House versions will have be in agreement on several key issues. Much publicized though these may be, there’s no assurance that both branches of the legislature will immediately settle to agree.

The areas of the bill based on the Department of Finance’s proposal that would likely take up more time would be on taxation of personal income, sugar-sweetened beverages, and petroleum products.

On personal income tax exemptions, the Senate version is pegged lower, i.e., only for individuals earning P150,000 a year. The Senate version accepts the House version, which is pegged at P250,000 for individual earning a year, only if the taxpayer has four dependents.

For the proposed tax on sugar-sweetened drinks, the Senate wants a two-phased approach. During the first two years, caloric sweetened drinks will be taxed at P5 per liter, while those with non-caloric sweeteners (like aspartame) will be taxed at P3 per liter.

On the third year, the tax levy will be based on weight, i.e., P0.05 per gram of sugar per drink. The Senate version exempted milk products and 3-in-1 coffee, the former because of its nutritional value, and the latter to favor majority of low income Filipino households that consume instant coffee.

While the Senate and House versions on the excise tax on petroleum products agree on a P6 per liter increase over the next three years, the Senate wants a lower tax in the first year, and increased in the next two years.

The Senate version wants the excise tax on liquid petroleum gas (LPG) to be at a lower P1 per liter during the first next three years since LPG is essential to most household budgets.

Should inflation exceed the government’s target and world crude prices rise over $80 per barrel, the Senate version inserts a safety catch that would immediately lift any fuel tax increases.

For sure

The remaining other provisions of the Senate and House versions are almost in harmony, which should be good in limiting debates to the above-mentioned areas.

For sure, vehicle sales next year will drop as both the upper and lower house agreed to adopt a five-tiered taxation schedule, with luxury cars and SUVs taxed higher, and small compact cars taxed the least to make them still within reach of young professionals and two-salary families.

The Senate and House also agreed to keep VAT exemptions on raw food, healthcare products and socialized housing units. Senior citizens, people with disabilities, cooperatives and the business process outsourcing industry will, likewise, continue to enjoy VAT exemption perks.

Also in agreement was the proposed increase in the threshold for VAT exemption on the sale of goods and services from P1.5 million to P3 million, purportedly to help small business owners.

Other provisions that were in agreement was the tax exemption for the 13th month pay and bonuses amounting to P82,000 (P100,000 for taxpayers with four dependents); a flat six percent tax for estates, with exemptions for estates with a net value of P5 million and below and agricultural lands of three hectares and lower. The estate tax payments were also stretched from six months to one year.

Pressure is building up now for Congress to move quickly to pass TRAIN. Just recently, the International Monetary Fund mentioned a possible overheating of the economy should the proposed tax reforms continue to be delayed. Hopefully, this is just bark.

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