The gains will be greater than the losses, and poor and low-income Filipinos will benefit the most.
This was what officials of the Department of Finance (DOF) told lawmakers on Wednesday as they allayed fears that the government’s proposed tax reform program, which seeks to lower personal income taxes but impose additional excise tax on gasoline and other oil products, would burden taxpayers and result in higher prices of other goods and services.
In a briefing of DOF officials on House Bill 4744 or an act amending sections of the National Internal Revenue Code of 1997, Finance Undersecretary Karl Chua presented the revised first package of the administration’s comprehensive tax reform program, which eyes to “lower personal income taxes, broaden the VAT base, adjust excise taxes on petroleum and automobiles, reduce the estate and donors tax, and provide an amnesty to past estate tax cases.”
The DOF first pitched to both houses of Congress the bill on tax reform in September last year, but lawmakers disagreed to some provisions, including the removal of the value-added tax exemption of senior citizens and persons with disabilities on non-essential purchases.
“This is really an antipoverty anti-inequality program where we envision the tax reform to contribution to a reduction in poverty from 21.6 last year to 14 percent in 2022, and to help our country graduate from lower middle-income status to upper middle income status by 2022,” Chua told lawmakers.
Rep. Dakila Karlo Cua, author of the bill, said the tax reform program envisions to create a tax system that is “simpler, fairer and more efficient, characterized by low rates and a broad base that promotes investment, job creation, and poverty reduction.”
Key features of the bill include the adjustment of the personal income tax (PIT) brackets, reduction of the maximum rate to 25 percent over time, except for highest income earners “to maintain progressivity and shift to a modified gross system to simplify the PIT system.” Revenue losses from personal income tax reform, however, will compensated through the expansion of VAT base by limiting exemptions to raw food and other necessities, increasing excise tax rates on all petroleum products, restructuring the excise tax on automobiles, and reducing the estate and donors tax to six percent.
“To realize these aspirations, the Duterte administration recognizes the need to sustain high growth of at least seven percent every year for one generation, shift the source of growth from consumption to investment, and heavily invest in our people through improved social services. These necessary investments require an additional one trillion pesos annually over the long-term, of which some 400 billion pesos or 2 percent of the GDP is targeted by 2019,” Cua said.
“To mitigate the impact of the tax increases on the poor and vulnerable households, earmarking for social protection programs is proposed,” he added.
DOF’s Chua, a former World Bank economist for the Philippines, said the simplified income tax brackets under the tax reform package will result in an increased take-home pay for most individuals. Tax rates for 99 percent of taxpayers will gradually decrease within the next few years after implementation, the DOF said.
“Our goal is to correct our tax system’s inequity. We will lessen the overall tax burden of the poor and the middle class,” the finance department said.
DOF said lowering the personal income tax rate and estate and donor tax will result in a P139.6-billion loss in revenue, and a gain of P302.1 billion.
“Although we are giving away P140 billion in take-home pay, we also need to fund massive investment in people and infrastructure and this is where we will generate the balance,” Chua said.
The additional excise tax on fuel products, Chua said, was timely especially now that oil prices are “manageable,” adding that the government has not adjusted excise tax for almost 20 years now since 1997. Gains from the lowered personal income tax are “more than enough” to offset additional expenses from higher oil prices, car loan payments, and inflation, the DOF noted.
“I think the economy is also in a very strong position. We are also a victim of climate change. This is not only a revenue measure but also an environmental measure to ensure environmental sustainability going forward,” Chua said.
“The gain from the lowering of the personal income tax is far more than what the taxpayers have to pay in oil and automobile taxes. For many households who are taxpayers, this is still a net gain for them,” he added.
Chua said the higher taxes on diesel and gasoline will result in only a moderate increase in inflation of 1.5 percent, on top of the current inflation rate of 1.8 percent.
“This is a fast-growing economy where people are also getting richer so the income is more than enough to offset tax increases… And if we give enough money to the people by lowering personal income tax, we think that it is even a better deal for many. We have to remember that this is still a moderate oil price regime,” Chua said.
Despite the additional oil excise, the DOF said motorists will still have fueling savings from the fuel price decline since 2011.
Under the first package, the following tax administration measures are also being pursued: mandatory use of fuel marking, mandatory issuance of e-receipts, mandatory interconnection of large and medium firms point of sale machines and accounting system with the Bureau and Internal Revenue, mandatory use of GPS locks when transporting cargo from ports to economic zones and free ports, and the relaxation of bank secrecy for fraud cases.
“As regards putting up a fuel marking and monitoring system, the intended results are increase revenue from fuel taxes and high-quality petroleum sold in the market. This step will certainly plug the leakage of duties and taxes due on this commodity and protect both the consumers and the environment,” Rep. Cua said. JE
