House approves on final reading Duterte tax reform package

AP

Update

The House of Representatives on Wednesday approved on final reading the administration’s tax reform package which seeks to lower personal income tax, while at the same time raising excise tax on oil and vehicles, expanding the value-added tax (VAT) base, and imposing tax on sweetened beverage and lotto winnings.

In a vote of 246 members voting in the affirmative, nine negative, and one abstention, the lower House approved on third reading House Bill 5636, drafted by the Department of Finance and duly endorsed by members of Congress, seeking to amend the National Internal Revenue Code.

The bill was passed on second and third reading on the same session day, following the certification as urgent of the bill by President Rodrigo Duterte.

READ: Duterte certifies tax reform package as urgent

The passage of the bill meant the government has hurdled the first step in seeking to increase the country’s tax collection, which should originate in the House of Representatives before proceeding to the Senate.

READ: DOF files tax reform package, seeks reduction in income tax

Quirino Rep. Dakila Cua, the bill’s sponsor and ways and means committee chairperson, lauded what he deemed a “pro-poor” tax reform package, even as the Makabayan bloc which voted no to it called it anti-poor for imposing taxes even on the marginalized.

“After all of the deliberations, I am very much convinced that this is a pro-poor package and we can trust the President that this will really help the lives of the Filipinos. Ito ay para sa mahihirap, ito ay hindi makakapagpahirap (This is for the poor, this does not make the poor poorer),” Cua said.

Deputy Speaker Marikina Rep. Miro Quimbo, who served as ways and means chairperson in the previous Congress, concluded their fight for tax reform package in the lower House.

“Today’s approval on third reading represents a culmination of the work that we tax advocates had been fighting for in the last three years. Finally, our fight to liberate the ordinary worker from the highest and most unfair taxes in Asia is about to come to a fruitful end,” Quimbo said.

“More than a million workers who currently pay income taxes today, will no longer be require to pay any income tax. It’s a big relief to the ordinary worker who for years have been paying for almost all of the tax collection of government. This we must celebrate!” he added.

Cooperatives’ VAT exemption retained

The amended bill however no longer removed the VAT exemption on the following transactions by cooperatives – sales by agricultural cooperatives, gross receipts from lending activities by credit or multi-purpose cooperatives, sales by non-agricultural, non-electric and non-credit cooperatives.

Originally, the bill wanted to remove this VAT exemption which was vehemently opposed by party-list lawmakers representing cooperatives in Congress.

Cua said the lower House decided to retain the VAT exemption to make the tax package more favorable to the poor.

“We decided to retain it because we want to make it pro-poor,” Cua said.

READ: Coop representatives vow to fight removal of VAT exemption | House leader: VAT exemption for cooperatives to stay 

Finance Undersecretary Karl Kendrick Chua said that P6 billion of potential revenue annually would be lost because of the retention of the VAT exemption for cooperatives.

“For the coops, we estimate around P6 billion at least annually, not counting the unestimated leakage,” Chua said.

However, the approved bill seeks to put conditions on the removal of VAT exemption on socialized housing, by providing that the sale of real property utilized for social housing would no longer be an exempt transaction upon the establishment of a housing voucher system that would benefit the buyers of socialized housing.

The bill added that residential lots valued at P1.5 million and below, as well as house and lot and other residential dwellings valued at P2.5 million and below are not included in the above-conditioned removal from VAT exemption.

The amended bill however lifted the VAT exemption of the lease of residential unit with a monthly rental not exceeding P10,000.

The amended bill also retained the VAT exemption of senior citizens and persons with disabilities (PWDs).

READ: It’s official: VAT exemptions on senior citizens, PWDs retained

Personal income tax

Under the personal income tax segment of the approved bill, taxpayers earning up to P250,000 a year will enjoy tax exemption, while those earning P250,000 to P400,000 will pay a 20-percent tax on the excess over P250,000.

Those earning P400,000 to P800,000 will pay P30,000 plus 25 percent of income in excess of P400,000.

Taxpayers earning P800,000 to P2 million will pay P130,000 plus 30 percent in excess of P800,000.

Those earning P2 million to P5 million will be taxed P490,000 plus 32 percent of the income in excess of P2 million.

The wealthiest, or those earning more than P5 million annually, will be taxed P1.45 million plus 35 percent in excess of P5 million.

The above-mentioned tax schedule would be effective from 2018 to 2020.

Meanwhile, according to the tax schedule effective 2021 onwards, taxpayers earning up to P250,000 a year will still enjoy personal income tax exemption, while those earning P250,000 to P400,000 will pay a 15-percent tax on the excess over P250,000.

Those earning P400,000 to P800,000 will pay P22,500 plus 20 percent of income in excess of P400,000.

Taxpayers earning P800,000 to P2 million will pay P102,500 plus 25 percent in excess of P800,000.

Those earning P2 million to P5 million will be taxed P402,500 plus 30 percent of the income in excess of P2 million.

The wealthiest, or those earning more than P5 million annually, will be taxed P1.3 million plus 35 percent in excess of P5 million.

Automobile excise tax

Meanwhile, under the auto excise tax segment, the bill seeks to put an ad valorem tax on automobiles based on the manufacturer’s or importer’s selling price, net of excise and value-added tax.

Unlike the first version, the auto excise tax segment will be staggered into two phases in 2018 and 2019.

Effective 2018, the excise tax for automobiles will be raised to three percent from the present two percent if the net manufacturer’s price/importer’s selling price is up to P600,000.

If the price is P600,000 to P1.1 million, the tax rate will be P18,000 plus 30 percent of value in excess of P600,000.  The present tax rate is P12,000 plus 20 percent of value in excess of P600,000.

If the price is over P1.1 million to P2.1 million, the tax rate will be P168,000 plus 50 percent of value in excess of P1.1 million. The present tax rate is P112,000 plus 40 percent of value in excess of P1.1 million.

If the price is P2.1 million to P3.1 million, the tax rate will be P668,000 plus 80 percent of value in excess of P2.1 million. The present rate is P512,000 plus 60 percent of value in excess of P2.1 million.

Lastly, if the price is P3.1 million, the tax rate will be P1.468 million plus 90 percent of the value in excess of P3.1 million.

Meanwhile, effective 2019, the excise tax for automobiles will be raised to four percent if the net manufacturer’s price/importer’s selling price is up to P600,000.

If the price is P600,000 to P1.1 million, the tax rate will be P24,000 plus 40 percent of value in excess of P600,000.  The present tax rate is P12,000 plus 20 percent of value in excess of P600,000.

If the price is over P1.1 million to P2.1 million, the tax rate will be P224,000 plus 60 percent of value in excess of P1.1 million. The present tax rate is P112,000 plus 40 percent of value in excess of P1.1 million.

If the price is P2.1 million to P3.1 million, the tax rate will be P824,000 plus 100 percent of value in excess of P2.1 million. The present rate is P512,000 plus 60 percent of value in excess of P2.1 million.

If the price is over P3.1 million, the tax rate will be P1.824 million plus 120 percent of the value in excess of P3.1 million.

Oil excise tax

The bill seeks to impose on diesel fuel oil, kerosene, liquefied petroleum gas and bunker fuel oil a P3 per liter excise tax effective 2018, P5 per liter excise tax effective 2019, and P6 per liter excise tax effective 2020. These have no excise tax under the current tax system.

The bill will also increase the excise tax already imposed on lubricating oils and greases, processed gas, waxes and petrolatum, denatured alcohol for motive power, naphtha, regular gasoline, leaded premium gasoline, aviation turbo jet fuel, and asphalts.

The allocation of the 40 percent yearly incremental revenues from the petroleum excise tax for the social benefits program would also be four years, from the original proposal of three years.

Sweetened beverage taxes

The latest version of the bill also seeks to add a new provision to the National Internal Revenue Code by imposing an excise tax on sugar sweetened beverage.

According to the bill, sugar sweetened beverage will be levied with an excise tax of P10 per liter of volume capacity, which will be adjusted once every three years through rules and regulations issued by the Finance secretary after considering its effect on the inflation rate.

The bill defines a sugar sweetened beverage as non-alcoholic beverage that includes sweetened juice drinks; sweetened tea and coffee; all carbonated beverage with added sugar, including those with caloric and non-caloric sweeteners; flavored water; energy drinks; sports drinks; powdered drinks not classified as milk, juice, tea and coffee; cereal and grain beverages; and other non-alcoholic beverages that contain sugar.

Exempted from the tax package are the following beverages, according to the bill: plain milk and milk drink products without added sugar; all milk products, infant formula, and milk alternatives such as soy milk, almond milk and chocolate milk; 100 percent natural fruit juices, 100 percent natural vegetable juice; meal replacement and medically indicated beverages; ground coffee; and unsweetened tea.

Benefits, bonuses, lotto

The approved bill likewise seeks to remove the tax exemption on the Philippine Charity Sweepstakes Office and lotto winnings. The bill removed the PCSO lotto winnings as an exemption to the 20 percent tax on interests, royalties, prizes and other winnings.

The approved bill also includes in the National Internal Revenue Code the increase in the tax exemption for the 13th month pay and other benefits to P100,000 from P82,000, which was earlier passed by the 16h Congress.

READ: Higher tax exemption cap on bonuses now a law

The approved bill also puts a final tax of 30 percent, amending the National Internal Revenue Code which earlier puts the tax at 32 percent as of 2000, on the grossed up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees) by the employer.

The approved bill provides that the fringe benefit effective 2022 and thereafter would form part of the gross income of the recipient employee, subject to the regular income tax rates.  JE