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Income tax cuts, tax reforms to boost economic growth – BSP

By: - Reporter / @bendeveraINQ
/ 11:41 AM February 01, 2017
CBC MID-YEAR ECONOMIC REVIEW FORUM/AUG. 26, 2016: Diwa C. Guinigundo, Deputy Governor Monetary Stability Sector, Banko Sentral ng Pilipinas (BSP) discusses the Philippine Economy: Anchoring Confidence to Secure Growth during the Cebu Business Club Annual Mid-Year Economic review and Business Forum in Casino Español de Cebu.(CDN PHOTO/JUNJIE MENDOZA)

BSP Deputy Governor Diwa C. Guinigundo handles the Monetary Stability Sector. (CDN FILE PHOTO/JUNJIE MENDOZA)

MANILA — Bringing down personal income tax rates under the government’s proposed comprehensive tax reform program will boost economic growth in the next two years, according to a ranking Bangko Sentral ng Pilipinas official.

Deputy Governor Diwa C. Guinigundo told a Senate ways and means committee hearing, on Tuesday, expressed the BSP’s support for the tax reform as it would add 0.6 percentage point to the gross domestic product (GDP) growth this year on top of adding a 0.2 percentage point in 2018. The government targets GDP growth of 6.5-7.5 percent this year before further expanding by 7-8 percent yearly starting next year until 2022.

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“The lowering of income and corporate taxes will translate immediately to higher consumption, and in the part of the government, [higher spending] on infrastructure, human development and social protection for the poor. Tax reform will impact immediately on consumption and investment,” Guinigundo told reporters.

However, as the first package being pitched by the Department of Finance would also entail slapping new or higher taxes on consumption, Guinigundo said it would add 0.5 percentage point to the inflation rate this year as well as 0.7 percentage point in 2018.

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As such, inflation could rise by a higher 3.8 percent in 2017 from the BSP’s forecast of 3.3 percent, while next year’s rate could increase to 3.7 percent from the 3-percent forecast. The government targets inflation within the 2-4 percent range in the next two years.

But Guinigundo said the impact of tax reform on inflation would be “quite modest.”

“There are countervailing measures such that when the economy’s potential capacity is increased because of infrastructure and spending on social protection, inflation also slows in the sense that more people will be able to produce and there is more potential capacity to produce. So in the presence of better supply conditions, price movement will moderate,” Guinigundo explained.

In a statement Tuesday, Senator Sonny Angara welcomed the retention of the tax exemption of workers’ 13th-month pay as well as other bonuses in the first tax reform package presented by the DOF before the Senate ways and means committee, which he chairs.

“This signifies that our government is listening to our calls and the sentiments of the people, and is open to compromise,” Angara said. Under Republic Act No. 10653, the government and private employees’ 13th-month pay, Christmas bonuses as well as productivity incentives not exceeding P82,000, were tax-exempt.

“We seek to build on this as we work hand-in-hand in coming up with the much-needed tax reform that will extend the most relief to our people, while balancing it with the government’s ambitious vision of jumpstarting our country’s economic growth,” Angara said, who earlier lauded the DOF’s decision to retain the exemption of senior citizens as well as persons with disabilities from the 12-percent value-added tax (VAT).

Also on Tuesday, the Department of Finance said in a statement that the proposed staggered increase in oil excise taxes would benefit about 10 million households belonging to the poorest half of the population, who would receive one-time unconditional cash grants amounting a total of P36 billion.

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Finance Undersecretary Karl Kendrick T. Chua said “House Bill No. 4774 includes a provision earmarking 40 percent of the first year incremental revenues from the fuel excise tax adjustments to a targeted transfer program to help the country’s poor and vulnerable sectors through unconditional cash grants of P300 a month per beneficiary-family for one year to help households cope with the temporary yet moderate price increase.”

HB 4774 filed by House ways and means committee chair and Quirino Rep. Dakila Carlo E. Cua in January contained the DOF’s proposal to lower personal income taxes, broaden the value-added tax base by cutting down on exemptions, increase excise taxes on petroleum and automobiles, as well as reduce the estate and donors’ tax rates.

But instead of the initial proposal of a one-time hike to P6 in the excise tax slapped on fuel, HB 4774 instead proposed to implement it in three tranches of P3, P2 and P1 during the first three years, after which the government would implement annual 4-percent indexation of rates to account for inflation.

Chua said they would like to implement the first tranche of increase in oil excise tax by the middle of this year.

“The total cash grant per household would amount to P3,600 per year, or a total of P36 billion for 10 million households. Another P4 billion would cover the administrative costs of distributing the cash grants, for a total of P40 billion earmarked for the targeted transfer program, which will be implemented for one year,” Chua said.

“DOF estimates show that the poorest 10 percent of households will increase expenses by P532 more per year if the fuel excise increase is implemented and another P522 per year as a result of higher prices. Thus, tax reform will have a positive impact on poor households who will receive the P3,600 cash subsidy, as they would have a net of P2,546 more to spend per year to help them cope with expenses,” Chua added.

“The targeted transfer program is to mitigate the initial shock of the increase in petroleum excises on the poor and vulnerable sectors. This will allow them to continue spending normally while adjusting smoothly to new price regimes, as well as to weather the initial one-to-two year potential inflationary effect on prices. The program will cover the current four million Pantawid Pamilyang Pilipino Program (4Ps) beneficiaries and another six million that would be targeted by the government from the poorest 50 percent of the population,” according to Chua.

HB 4774 will also push for tax on lottery, while lowering the estate and donors’ taxes to a flat rate of 6 percent.

Also under the first package, the following tax administration measures were to be 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 of Internal Revenue; mandatory use of GPS locks when transporting cargo from ports to economic zones and free ports; and relaxation of bank secrecy for fraud cases.

The bill retained the key provisions of the original first package as proposed by the DOF, including adjusting personal income tax brackets to correct “income bracket creeping”; reducing the maximum personal income tax rate to 25 percent over time, save for the “ultra-rich” who would be slapped a higher 35 percent; and shifting to a simpler modified gross system.

Based on the DOF’s computations, the first package will result in a net revenue gain of P162.5 billion in the first year of implementation as the P139.6 billion in foregone revenues form lower personal income as well as estate and donor taxes would be offset by the P302.1-billion gain coming from VAT base expansion (P92.5 billion), higher automobile excise (P31.4 billion), higher excise taxes on petroleum (P120.9 billion) and P57.4 billion in complementary revenues from other revenue measures that may also be passed by Congress.

The Duterte administration’s tax policy reform program, aimed at augmenting the P1 trillion in priority investments needed by the administration in the next six years to sustain at least 7-percent economic growth until 2040 as well as slash the poverty incidence, will come in six packages.

The second package, which would likely be introduced in 2018 or after the Sin Tax Reform Law matures next year, would levy taxes indexed to inflation on sweetened drinks, as well as further hike the excise tax slapped on alcohol and tobacco products.

The four other tax packages include those on corporate income tax and incentives; property tax; capital income tax; and other taxes (carbon tax, “fatty” food tax, lottery and casino tax, as well as mining tax), eyed for passage in the next two to three years.

Chua had said that tax reform would be crucial to help reduce poverty incidence to 14 percent by 2022 from 21.6 percent last year, aid the country rise to upper middle income status by the end of the Duterte administration from lower middle income at present, as well as eradicate poverty by 2040.

According to the Cabinet-level, interagency Development Budget Coordination Committee (DBCC), the proposed 2018 national budget, pegged at a record-high of P3.84 trillion, will be contingent on Congress’ approval of the proposed first tax reform package, as government revenues are projected to hit P2.913 trillion with the help of additional taxes to be introduced to offset the planned lowering of personal income tax rates.

“The projected proceeds of the tax reform package—around P206.8 billion—will fund the government’s big-ticket development projects, particularly the infrastructure program,” the DBCC said in a recent report.  SFM

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TAGS: Bangko Sentral ng Pilipinas, Business, comprehensive tax reform program, conditional cash transfer program, Diwa C. Guinigundo, Duterte Administration, Economic Growth, Economy, Excise Taxes, Finance, gross domestic product, Inflation, Legislation, Oil, tax reform
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