Finance Undersecretary Karl Kendrick Chua said that “substantial progress” has been achieved in the Comprehensive Tax Reform Program (CTRP) bill now pending in the Congress after the House ways and means committee voted last Wednesday to pass a substitute measure drafted by the panel’s Technical Working Group (TWG) that only had moderate changes from the original measure submitted last year by the Department of Finance (DOF).
Chua expressed the hope that with the substitute bill’s approval by the House ways and means committee following the traditional Lenten break of the Congress, the House of Representatives could pass this vital tax reform measure before the Legislature adjourns on June 2.
“Substantial progress has been achieved in the House of Representatives,” Chua said. “We remain hopeful that with this committee vote for the substitute bill, the tax reform measure can still be approved at least by the House of Representatives before the Congress ends its first regular session this June. We will also convince the plenary to include some original provisions that were removed.”
The substitute bill, which the House committee chaired by Quirino Rep. Dakila Carlo Chua approved on May 3 by a 17-4 vote with three abstentions, consolidated the DOF-endorsed House Bill No. 4774, which contains the first package of the CTRP that aims to overhaul the country’s tax code by making the system simpler, more efficient and fairer especially for the poor and low-income Filipinos.
Before the Lenten recess, the House ways and means committee agreed in principle to passing tax reforms as a package, instead of on a piecemeal basis and formed a TWG to draft the substitute bill for the panel’s approval after the six-week congressional break.
The TWG met 4 times during the Lenten break to finalize the bill replacing HB 4774, which was filed last January by Cua.
Cua said that after approving the substitute bill, the Cua-chaired committee referred it to the House committee on appropriations for further deliberations on the appropriations or earmarking component of this tax reform measure, which aims to help raise enough cash for the aggressive expenditure program that the Duterte administration aims to undertake in the medium term to sustain the growth momentum, support the golden age of infrastructure, accelerate poverty reduction and transform the Philippines into an upper middle-income economy by 2022.
“The substitute bill largely follows the proposal of the DOF with some moderate changes. The team is now estimating the revenue and deficit impact of the substitute measure,” Chua said.
Among the key features of the substitute bill are the following: 1) the lowering of personal income tax (PIT) rates as proposed by the DOF but indexed to cumulative Consumer Price Index (CPI) inflation every three years; 2) a flat rate of 6 percent for the estate and donor’s taxes 3) broadening the tax base by removing special laws on VAT exemptions, including those for cooperatives, housing and leasing, but retaining exemptions for seniors and persons with disabilities;
4) staggered “3-2-1” excise tax increase for petroleum products from 2018 to 2020 but with no indexation to inflation, and liquefied petroleum gas (LPG) used as feedstock to be exempted from the hike; 5) a five-bracket excise tax structure for automobiles with a two-year phase-in period for the tax increases; and 6) earmarking of 40 percent of the proceeds from the fuel excise tax increase for social protection programs for the first three years of the tax reform measure’s implementation.
Chua said that for the Value Added Tax (VAT), the threshold for exemptions was increased to P5 million and indexed to inflation every three years.
The zero-VAT rate was also retained for the renewable energy sector and limited to direct exporters, pending the establishment of the DOF-proposed cash refund system, in which refunds can be obtained by the beneficiary-taxpayers within 90 days of their application for such exemptions, Chua said.
For the self-employed and professionals within the VAT threshold of P5million, Chua said the substitute bill requires them to pay an 8 percent tax on gross sales or receipts in lieu of the income and percentage taxes.
The tax for those above this VAT threshold will be based on the 30 percent corporate income tax rate with minimum tax, Chua said.
He said the Optional Standard Deductions (OSD) was retained at 40 percent of gross sales/receipts under the substitute bill.
This substitute bill adopted the DOF proposal to subject lottery and sweepstakes winnings from the Philippine Charity Sweepstakes Office (PCSO) to a 20 percent passive income tax in lieu of the lower 5 percent prize fund tax.
Another DOF proposal adopted under the substitute bill was the removal of the 15 percent tax rate for the employees of the Regional Operating Headquarters (ROH) of corporations, which are foreign business entities whose purpose is to service its affiliates, subsidiaries or branches in the Philippines and other foreign markets.
As proposed by the DOF, Chua said the fringe benefits tax will be initially lowered from 32 percent to 30 percent for the first three years and thereafter incorporated in the gross income of taxpayers.
On oil excises, Chua said the original proposal of staggering the P6 increase to P3 in the first year, P2 in the second year and P1 in the third year was adopted, but with no indexation to inflation thereafter.
For automobile excises, five brackets were adopted (based on price levels) under the substitute bill, which also set a two-year phase-in period for its implementation, he said.
Pickups are exempted under the substitute bill, along with hybrid cars if these vehicles can run 30 kilometers on a single charge.
Earlier, Finance Secretary Carlos Dominguez III said the first package of the CTRP will serve as the “cornerstone” of the funding for the government’s ambitious “build, build, build” infrastructure program, which will require some P8.4 trillion over the medium term.
Besides the CTRP, this unprecedented infra program will also be funded by foreign development aid and commercial loans, Dominguez said.
Dominguez said that Malacañang’s plan to accelerate spending on infrastructure and on human capital by upgrading the country’s educational and health care systems, along with its goal to lower income tax rates to sharpen the Philippines’ global competitiveness, would require additional revenue measures that could only be generated in part via the CTRP.
More on TaxReform News
Congress approves increased excise taxes on alcohol and e-cigarettes →Date Posted: December 25, 2019
Finance Secretary Carlos G. Dominguez lauded the Congress for passing President Rodrigo Duterte’s measure imposing … Continue reading Congress approves increased excise taxes on alcohol and e-cigarettes
DOF to focus on congressional OK of higher taxes on alcohol, e-cigarettes for UHC program →Date Posted: July 31, 2019
The contribution of the Philippine Charity Sweepstakes Office (PCSO) to the funds for Universal Health … Continue reading DOF to focus on congressional OK of higher taxes on alcohol, e-cigarettes for UHC program
Eligible investors to continue enjoying incentives under TRABAHO bill →Date Posted: November 1, 2018
Foreign investors that are qualified and performing well have no reason to be worried over … Continue reading Eligible investors to continue enjoying incentives under TRABAHO bill
DOF to urge Congress to pass higher tobacco tax rates to further discourage smoking, raise more healthcare fundsDate Posted: April 29, 2019
The Department of Finance (DOF) will “try its best” until the last minute to convince the Congress to impose new “sin” tax rates on tobacco products that will make cigarettes pricey enough to further discourage smoking, especially among teenagers.