Finance Secretary Carlos Dominguez III has expressed confidence that President Rodrigo Duterte might not even have to expend any political capital on getting the proposed Comprehensive Tax Reform Program (CTRP) approved by the Congress, given the inherent merits of this plan to make the current tax system simpler, fairer and more efficient, particularly for the poor plus low- and middle-income taxpayers.
The first package of the CTRP, now pending at the House ways and means committee under a bill filed by its chairman, Rep. Dakila Carlo Cua, aims to lower personal income tax (PIT) rates as well as donor and estate taxes.
Cua’s House Bill No. 4774, which is endorsed by the Department of Finance (DOF), also aims to broaden the tax base by adjusting excise tax rates for automobiles and fuel and plugging leakages in the value-added tax (VAT), but retaining current exemptions enjoyed by seniors and persons with disabilities, among other revenue-enhancing measures.
“If you look at the tax reform package, and see and weigh the benefits and the pain that it might cause, you won’t need to use any political capital because it’s a good package. So he may not even have to spend a single iota [political capital] on this tax package,” Dominguez said.
Dominguez said he hoped that the entire CTRP would be passed in six months, “but the reality of the situation is it cannot be done.”
“The last big tax (reform) package took five years to pass, two Congresses. I hope to finish it in one Congress, three years,” he said.
The DOF’s timetable is to get Package 1 passed by June 2017, so that it can be partially implemented by the second half this year, and the entire plan, including the cuts in PIT rates, by 2018.
Dominguez said the benefits of Package One for low- to middle-income taxpayers far outweigh the minimal spikes in inflation and prices that would result from the implementation of this tax plan.
He said that for middle-income taxpayers, the PIT reductions under Package 1 “will probably save anywhere from P25,000 to P30,000 a year off the bat.”
“We can handle the inflation rates because our inflation rates have been really low, it’s below two percent last year. The extra expense they’re going to spend for, let’s say, cost of transportation is nowhere near what they’re going to save in taxes, nowhere near. So what political capital do you have to spend on that? It’s good,” Dominguez said.
Besides lowering PIT rates, Package 1 shifts the tax burden to affluent taxpayers by taxing their consumption so that additional revenues raised from this effort can provide targeted transfers to indigent and vulnerable households and support the Duterte administration’s unprecedented public spending on infrastructure, human capital and social protection for the poor.
HB 4774 earmarks some P48 billion for targeted transfers that would benefit the bottom 50 percent of the population and shield them from the impact of the fuel excise tax hikes and other revenue compensating measures, according to DOF Undersecretary Karl Kendrick Chua.
For vulnerable sectors and low-income groups, Chua said the DOF has proposed a targeted transfer program for the poorest 50 percent or about 10 million households, which includes unconditional cash transfers, the reintroduction of the Pantawid Pasada program that will provide fuel price discounts to public utility vehicles, and a jeep modernization program to improve the engine efficiency of these vehicles.
The direct transfers to the country’s 10 million poorest households would mean an additional P3,600 annual income increase for each of these families, Chua noted.
Complementary reforms being considered by the Congress to HB 4774 include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation, and granting an amnesty to past estate tax cases.
HB 4774 also includes legislated administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as the adoption of a fuel marking and monitoring system to prevent oil smuggling–not only to collect the correct taxes, but also to ensure that only high-quality and unadulterated petroleum products are sold in the market–along with the use of e-receipts, and the mandatory link of the point-of-sale (POS) systems of establishments directly to the BIR.
Dominguez stressed that tax reform is necessary to help fund the Duterte administration’s accelerated spending on infrastructure, which would not only fill the massive backlog left behind by the previous administrations but would also create more jobs that are needed to help free some six million Filipinos from poverty between now and 2022.
Investing heavily in infrastructure is likewise indispensable to the government’s goal of sustaining high growth and making its benefits felt by all Filipinos.
Dominguez said tax reform is needed so that the government can invest P1 trillion more each year on top of the current P1.3 trillion it invests in the economy.
Of the additional P1 trillion, he said P402 billion will be invested in education, P138 billion in health, P147 billion in social protection for the poorest of the poor, P194 billion in urban infrastructure and P188 billion in rural infrastructure.
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