Bracing for a bigger storm

Now that the first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP) has taken effect, our government leaders are now preparing for the second package, which will have a bigger impact on the business sector.

The first package, contained in the Tax Reform for Acceleration and Inclusion or TRAIN Law, which took effect on Jan. 1, 2018, reduced taxes on personal income, estate and donation, but increased taxes on certain passive incomes, documents (documentary stamp tax) as well as excise taxes on petroleum products, minerals, automobiles and cigarettes.

Under TRAIN, individuals whose taxable incomes are P250,000 or less will now be tax-exempt. Those with a taxable income of above P250,000 will be subject to a 20 percent to 35 percent income tax rate effective 2018, and 15 percent to 35 percent beginning 2023. Meanwhile, the deductible 13th month pay and other benefits are now higher at P90,000 as against P82,000 before.

Unfortunately, certain deductions from the taxable income or the gross income had been removed under the new law. Among these are the personal exemption of P50,000, additional exemption of P25,000 per dependent child, and the premium for health and hospitalization insurance of P2,400 per year.

To encourage heirs to pay for the taxes of the estate of their decedent, the TRAIN reduced estate tax rates by making it a flat rate of six percent compared to a previous 5-32 percent of the net estate. Certain deductions from the net estate have also been increased, like the family home, from P1 million to P10 million, and the standard deduction, from P1 million to P5 million.

The donor’s tax rate was also reduced to a single rate of six percent regardless of the relationship between the donor and the donee, unlike previously when the donor’s tax rates were two percent to 15 percent if the donor and donee are related, and 30 percent if not-related. But donation of real property is now subject to a documentary stamp tax of P15 for every P1,000.

Republic Act 10963 also imposed an excise tax on sugar-sweetened beverages and invasive cosmetic procedures) and removed the tax exemption of lotto and other PCSO winnings amounting to more than P10,000.

Consumers are more hard-hit by these changes in the tax regime. And why is that? This is because manufacturers can always pass on the additional excise tax to their buyers, resulting in higher prices of the end-product (such as cigarettes, softdrinks, gasoline and diesel).

Meanwhile, the second (of five) batch of tax reform measures scheduled for approval by Congress this year will include a lowering of the corporate income tax from 30 percent to 28 percent by 2019 and 25 percent by 2021; an increase in the motor vehicle users’ charge; a general tax amnesty;  taxes on dividends or capital income; rationalization of fiscal incentives being enjoyed by certain businesses and industries (replacement of the five-percent gross income tax to a reduced corporate income tax rate of 15 percent) and a review of the tax incentives granted by the Board of Investments under the Omnibus Investment Code, by the Philippine Economic Zone Authority to ecozone locators and developers, and by other agencies granting incentives to other ecozones like those in Subic, Clark, etc.; review of the sin tax regime for both alcohol and tobacco; among others.

These changes will have far reaching effect on our economy and may be revenue-neutral at least during the first year of implementation. According to the Department of Finance, the P34.8 billion in foregone revenues from the reduced corporate income tax rates would be offset by a similar P34.8-billion gain from the rationalization of fiscal incentives during the first year of implementation.

As for existing business tax incentives, a sunset provision of a maximum of five years will be put in place. For sure, foreign investors will be rethinking their investments in the Philippines. Even before these changes happen, the Korean Chamber of Commerce of the Philippines had already reported last year that Korean manufacturing companies in the Philippines are packing up and leaving the country for Vietnam where they see lower costs and an easier way of doing business.

A constant irritant

One of the country’s tourism leaders has asked Manila Mayor Joseph Estrada and Foreign Affairs Secretary Allan Cayetano to remove the “Comfort Women” statue in Manila to preserve the good relationship between the Philippines and Japan.

According to Robert Lim Joseph, president of the Network of Independent Travel and Allied Services Philippines (NITAS), the statue will bring disharmony or ill relationship between the two countries, especially since Japan has already asked for forgiveness for the sins committed by some Japanese soldiers during World War II against Filipino women forced into sexual slavery.

 Joseph said the statue will just rekindle the pain, hatred and anger of some Filipinos against the Japanese while the latter is trying to resolve the matter.

He emphasized that while the country should commiserate with the sad plight of Filipino comfort women during World War II, there is also a need to continue strengthening relations with Japan. Otherwise, expect a dramatic decrease in tourism, difficulty in securing visas, reduction of investments, prospective job loss, loss of opportunities in securing loans with very low interest, among others.

Surviving Filipino “comfort women” greeted visiting Japan Prime Minister Shinzo Abe last year with an open letter seeking a formal apology and compensation from Japan for the atrocities they suffered during the Japanese occupation. The elderly survivors of wartime sexual captivity and their supporters also gathered for a rally outside the Japanese Embassy in Pasay City to highlight their plight and called on President Duterte to bring the matter up in his meeting with Abe.

They asked Abe to assist them in the resolution of issues confronting Filipino comfort women, including compensation and inclusion of their story in historical books, even as they pointed out that although in 1997, the Japanese government extended a private fund from Japanese citizens with a concomitant letter of apology, the survivors demand that genuine redress can only be achieved through a formal apology and compensation from the Japanese government.

For comments, e-mail at [email protected]