Dominguez cites broad reform coalition, past gov’t initiatives for TRAIN success

Date Posted : January 26, 2018

Dominguez cites broad reform coalition, past gov’t initiatives for TRAIN success

Date Posted : January 26, 2018

Finance Secretary Carlos Dominguez III has cited the key reforms put in place by the past administrations as well as the support of a “broad reform coalition” for President Duterte’s success in pushing, for the first time, a tax reform package that is meant to reduce poverty and inequality rather than comply with external conditions to cut the country’s debt or deficit.

Dominguez said the Tax Reform for Acceleration and Inclusion Act (TRAIN), which is the first package under President Duterte’s Comprehensive Tax Reform Program (CTRP), “is a logical continuation of decades of reforms arduously passed by previous administrations.”

He mentioned the efforts of former Presidents Arroyo and Aquino III in ensuring the passage of legislative measures that paved the way for the Duterte administration to carry out the tax reforms needed to make the country’s system fairer, simpler and more efficient.

“We are not navigating blindly in pursuing these reforms. Instead, we are marching forward guided by the paths already plotted out before us. We have not forgotten their achievements. We will build on these past gains and do better,” Dominguez said during the 69th inaugural meeting of the Management Association of the Philippines (MAP) held at the Shangri-La, The Fort in Taguig City.

Dominguez also took note of the support of organizations such as the MAP for the successful enactment of TRAIN, which slashes personal income tax rates while raising additional revenues to help fund the government’s infrastructure modernization program and increased spending for health, education, and other social services.

“This is the first time in our history that we have passed a tax reform without a crisis and without an external force telling us what to do. It is also the first time we did a tax reform whose main purpose is not debt and deficit reduction, but rather poverty and inequality reduction. It is also the first tax reform where a significant amount of taxes have been reduced for individuals. This feat would not be possible without the support of a broad reform coalition, which counts many of you here today,” he said.

The finance chief said the TRAIN, which will help fulfill President Duterte’s “promise of real change,” provides the government with a robust revenue stream for programs in support of the administration’s agenda to achieve high inclusive growth by modernizing the nation’s logistics backbone, upgrading public services and improving living standards.

Dominguez said the country’s stable fiscal position was the result of the years of work of the previous administrations, especially those that carried out austerity programs to lift the economy out of the debt crisis.

He likewise cited the passage of the value-added tax (VAT) reform law in 2005 under President Arroyo, which saved the Philippines from a fiscal crisis and allowed the economy to grow robustly in the last 14 years.

The Philippine Tax Academy, Dominguez said, is another example “of a meritorious achievement of the Arroyo administration” that the government is implementing now to improve the professionalism and competence of revenue agencies both at the national and local levels.

Dominguez likewise acknowledged the passage under the Aquino administration of the Tax Incentive Management and Transparency Act (TIMTA), which has allowed the current government to identify the businesses receiving fiscal incentives and estimate with accuracy the actual cost of such incentives.

Through the TIMTA, the government was able to determine that the government gave away P301 billion to businesses in 2015 alone in the form of tax holidays, tax and customs duty exemptions, and other perks.

Corporations in the manufacturing sector were given income tax incentives amounting to P37 billion in 2015 as against a combined income of P240 billion with the incentives representing 16 percent of their net taxable income.

The services sector, meanwhile got P27 billion in income tax incentives, or 8 percent of their net taxable income of P327 billion, while firms in the energy sector registered an income of P81 billion, yet they were given P11 billion worth of incentives, which is 14 percent of their net taxable income. Dominguez noted.

“Our current dual corporate tax income tax system has created an unfair structure wherein those who are with the regular rate pay 30 percent of their net taxable income, while those receiving incentives pay much less, at around 6 to 13 percent. This is very unfair, as corporations under the regular regime are contributing just as much as those which are under the special regime,” the finance chief said.

Moreover, outside of the Tax Code, the country has 123 laws that grant investment incentives and 210 laws that grant non-investment incentives, or a total of 333 laws implemented by 14 investment promotion agencies that may need to be amended or removed to correct the inequalities in the corporate tax system, Dominguez added.

Thus, he said, the DOF, has submitted to the House of Representatives Package 2 of President Duterte’s CTRP on corporate taxation and modernizing fiscal incentives.

“We are logically expanding what the previous administration has started with the TIMTA law,” Dominguez said. “It is high time we use this important reform to revisit what we give away in tax incentives to see if they are really generating jobs, stimulating the economy in the countryside, and promoting research and development.”

The fiscal incentives system, he said, must be corrected to ensure that only those that are performance-based, targeted, time-bound, and transparent will remain.

Besides Package 2, the DOF will also be submitting this year Package 2 plus, which covers taxes on tobacco, alcohol, mining, coal, and casinos; Package 3, which tackles property taxation, and Package 4, which involves passive income and financial taxes, Dominguez said.

The Congress is also expected to pass Package 1B of the TRAIN within the first quarter of 2018, which covers the estate and general amnesty, the relaxation of bank secrecy laws, automatic exchange of information, and the adjustment in the Motor Vehicle User Charge.

“This ambitious yet achievable tax reform program is unlike anything we have seen before. Truly, this is an important milestone in our economic history,” Dominguez said.

In pushing for the succeeding tax reform packages, Dominguez called on the MAP to continue supporting such reforms “to provide a robust revenue stream that will enable our government to deliver the promise of change so that everyone is accorded with equal opportunities.”

“We hope that you remain to be our partners for change in this critical battle. While the easier path is to do nothing and continue with existing policies that could sustain moderate growth, we cannot afford to just muddle through if we want to see a Philippines free from extreme poverty in one generation’s time,” he said.


Date Posted January 26, 2018

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