While individual taxpayers will get income tax breaks for the first P250,000 of their taxable income, the country’s 10 million poorest households will each receive almost P10,000 spread over the next three years, starting 2018 in unconditional cash transfers (UCTs) to help them cope with the minimal impact of the tax reform law on inflation, according to the Department of Finance (DOF).
Finance Secretary Carlos Dominguez III said the overhaul of the country’s outdated tax system to make it simpler, fairer and more efficient via the enactment of the Tax Reform for Acceleration and Inclusion Act (TRAIN) starting this year along with the funding support for education and infrastructure modernization are among the biggest achievements of President Duterte in 2017.
Among the TRAIN’s key provisions is the earmarking of up to 30 percent of the incremental revenues to be raised from this law for social services, which include UCTs of P200 a month (or P2,400 per year) for the country’s 10 million poorest households for 2018, which will increase to P300 a month (or P3,600 per year) in 2019 and 2020, or a total of P9,600 in cash subsidies for each household over this three-year period.
“The big part of the budget, of course, is the Department of Education, yan ang priority ni Presidente (that is the priority of the President). This is part of our investment in infrastructure. Ang pinaka-importante yong (The most important is the) infrastructure of the mind of our youth, so we really have to spend a lot on that and he has also passed the law providing free college education now, didn’t he? So those are the big achievements of President Duterte in 2017,” Dominguez said in a recent interview.
“So, the next big item of course in the budget is the infrastructure program where we’re going to build a lot of bridges, a lot of roads,” added Dominguez.
The finance chief said that besides providing cash transfers for the poor, the government’s “Build, Build, Build” infra program will also create more livelihood and employment opportunities for them.
Besides cash transfers and job opportunities, Dominguez had earlier pointed out that even non-taxpayers will benefit from the TRAIN in terms of better infrastructure that will lower the transport and distribution costs of goods and improved services.
He said those not paying taxes will also benefit because of higher spending for education, health care, and other forms of human capital development that would help set the foundation to lift themselves out of the poverty trap.
The TRAIN, which took effect last Jan. 1, will exempt compensation earners and self-employed individuals with an annual taxable income of P250,000 and below or those earning at least P21,000 a month from paying the personal income tax. The 13th-month pay and other bonuses amounting to P90,000 are also tax-exempt.
For those earning P250,000 and above, the tax brackets have also been adjusted so that those with taxable incomes of more than P250,00 each but not above P2 million will pay only between 20 and 30 percent PIT.
Those earning P2 million annually but not above P8 million are taxed 32 percent. The hefty tax of 35 percent is reserved for those earning P8 million and above.
Starting 2023, the brackets will be adjusted further so that those with a taxable income of more than P250,00 but not above P2 million are taxed between 15 percent and 25 percent. Those earning P2 million annually but not above P5 million will be taxed 30 percent by 2023, while those above P8 million will be paying 35 percent personal income tax.
The TRAIN will offset the revenue-eroding PIT cuts with revenue-enhancing measures such as broadening the value-added tax (VAT) base; adjusting excise taxes on fuels, automobiles, and alcohol and tobacco products; and introducing a tax on sugar-sweetened beverages (SSBs) with exemptions.
Dominguez has pointed out that one major benefit of the infra buildup is the distribution of wealth to the countryside as farmers and other rural workers would eventually be able to transport their goods at lower costs and widen their access to markets.
People in urban centers, in turn, will get to enjoy lower prices of basic goods because of the reduced costs of transporting and distributing them, he added.
He has also allayed concerns that the adjustments in fuel excise taxes would lead to a ripple effect of higher inflation and higher prices of consumer goods, as the Philippine economy has become more diversified over the years as a result of the sound fiscal management policies of the previous administrations.
Dominguez recalled that when diesel prices spiked by 75 percent in 2016, inflation remained low and stable at 2.7 percent. Hence, the prices of food, transportation, electricity, gas, housing, and water did not increase significantly.
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