Sec. Benjamin Diokno at the Kapihan in Manila Bay, November 30, 2022. | INQUIRER.net file photo / Ryan Leagogo
MANILA, Philippines — The Marcos administration is keen on preserving its existing tax system to maintain fiscal discipline and to consolidate in 2028, Finance Secretary Benjamin Diokno said on Tuesday.
Diokno pointed out that the current tax system, which the Marcos administration inherited from the Duterte regime, is “much better” than what former President Rodrigo Duterte inherited from the administration of former chief executive Benigno Aquino III.
He said this is because Duterte passed tax measures that are “real reform” and aimed at providing income tax relief to most of the tax-paying community while generating revenues by increasing the tax on lifestyle products and services consumed by the top 1% of the wealthiest individuals.
Among these are cutting personal and corporate income tax; giving tax breaks to schools and hospitals; imposing excise and value-added tax on lifestyle products and services, including sweetened beverages, tobacco, and cosmetic products; and giving amnesty on estate taxes.
Diokno also highlighted the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) which rationalized fiscal incentives to investors.
“Because we really want to maintain fiscal discipline and we want to consolidate until 2028, there is reason to believe that we need to preserve the existing tax system,” he said in a Palace briefing.
“It’s not perfect, but we continue to review it – if there are some areas we can improve on it, we will improve on it,” the Finance chief added.
Low VAT efficiency
Diokno highlighted that the Philippines has the highest VAT rate in Southeast Asia at 12%. However, the country’s VAT efficiency rate stands at a meager 40% due to various tax exemptions granted by the government. The exemptions lead to a distinction between export and domestic market enterprises. Diokno further explained that the tax system is skewed towards providing incentives to export-oriented firms instead of domestic businesses.
“The reason being that if you are an export-oriented firm, you are competing with the rest of the world and therefore they should not be put at a disadvantage. Whereas if you are locally-based, then you are competing with other local domestic industries and therefore you should not be given a lot of incentives,” he said.
This distinction between export and domestic markets, he said, should remain to “preserve the integrity” of the country’s tax framework.
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