There are enough good reasons for Congress to immediately pass the tax reform package being pushed by the Duterte administration. Broadly, economists are agreed that it will help sustain the robust economic growth experienced by the Philippines in the past several years. The condition, of course, is that Congress needs to pass it as a package. Congress cannot choose to pass only those that it wants (tax cuts) and disallow the others (tax increases).
One aspect of the first phase of the reform program submitted to Congress in September 2016 that faces no opposition is the proposed reduction in personal income tax rates, which will benefit millions of middle-class and ordinary wage-earners. At a hearing of the Senate ways and means committee last week, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo also opined that bringing down personal income tax rates could boost economic growth as the lower taxes would translate immediately to higher consumption, which has been driving the expansion of the gross domestic product. The tax exemption of workers’ 13th-month pay as well as other bonuses will now also be retained in the first tax reform package.
However, the package cannot be all about lowering taxes, which will impact on the government’s budget and other development programs. Based on the computations of the Department of Finance, the first package would result in P139.6 billion in foregone revenues from lower personal income and estate and donor taxes on the first year of implementation alone. But this could be offset by revenue gains if the value-added tax base is expanded (P92.5 billion), the automobile excise tax rate is increased (P31.4 billion), and the excise tax on petroleum is raised (P120.9 billion), among others. In all, the DOF estimated that there would be a net revenue gain of P162.5 billion in the first year of implementation of the tax reform package.
Critics have argued that increasing taxes would affect mainly the poor. But it is clear in the first package that the proposed staggered increase in oil excise taxes would benefit about 10 million households belonging to the poorest half of the population as they would receive one-time unconditional cash grants amounting to a total of P36 billion. There is a provision in the proposed tax reform package allocating 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 a year, to help them cope with higher prices of basic goods. The total cash grant per household would amount to P3,600 a year, or a total of P36 billion for 10 million households. DOF estimates showed that the poorest 10 percent of households would increase expenses by P532 more a year if the fuel excise increase is implemented, and another P522 a year as a result of higher prices. The program will cover the current four million beneficiaries of the Pantawid Pamilyang Pilipino Program (4Ps) and another six million that will be targeted by the government from the poorest half of the population, according to the DOF.
In the end, as in many undertakings, balance needs to be struck between tax cuts and tax increases. As Sen. Sonny Angara, who heads the Senate ways and means committee tackling the proposed tax reform package, has pointed out, the aim is to come up with the much-needed tax reform that would extend the most relief to the people while balancing it with the government’s ambitious vision of jump-starting the country’s economic growth.
What is also crucial, if we may point out, is for the government to reform its main revenue-generating agencies to boost their efficiency, as the public will not want to be paying higher taxes and see others blatantly evading payment of their dues. And, more importantly, the country needs the tax reform package now, not later this year or in 2018.