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Editorial

Vital piece of tax reform

/ 12:12 AM June 05, 2017

It’s not certain that the tax reform package passed by the House of Representatives on third and final reading just before it adjourned last week will benefit ordinary Filipino wage earners. While they will have higher take-home pay with the reduction in income tax rates and the higher exemption to include those earning P250,000 a year, new taxes are to be imposed that will impact on their daily lives.

House Bill 5636 is the first of the four tax reform packages of the Duterte administration. Its most attractive feature is the lower tax rate for fixed-income earners starting on Jan. 1, 2018. It is also estimated that up to 80 percent of taxpayers will effectively be exempted from paying income taxes under the bill, and those paying the maximum rate of 32 percent will see this drop to 25 percent over time. The bill was also amended so that the 13th-month pay up to P100,000—up from the present P82,000—and other bonuses will be tax-free.

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The House also retained the 12-percent value-added tax exemption for cooperatives following strong opposition to its repeal. Similarly kept
VAT-exempt are electricity or fuel generated through renewable sources of energy such as biomass, solar, wind, hydropower, geothermal and ocean energy, among others.

However, the bill removed the VAT exemption on other sectors, the most prominent being the booming business process outsourcing industry, a major dollar-earner of the Philippines. The bill also imposes new tax burdens to help the government recover the revenue losses from the lowering of income tax rates. It proposes higher excise taxes on automobiles, but not buses, trucks, cargo vans, jeeps and special-purpose vehicles, starting Jan. 1. The contentious excise tax on petroleum products was also retained despite strong opposition from transport and consumer groups. Effective Jan. 1, there will be a P7 tax on every liter of leaded and unleaded premium gasoline, P3 on kerosene and diesel, and P3 on every kilo of liquefied petroleum gas, which most consumers use for cooking. An excise tax of P10 a liter will likewise be imposed on sugar-sweetened beverages as well as artificial sweeteners.

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The lawmakers who voted against the tax measure argue that it is antipoor because the public would shoulder the increase in prices of basic goods and services as a result of new taxes. But there are provisions in it that will help mitigate the impact especially on the marginalized members of society, not necessarily the middle class. Analysts have noted that social support coming from the measure could also offset the negative impact of the new levies. Incremental revenues to be generated from the higher petroleum taxes will be used to support public utility drivers for four years. Conditional cash transfers to the poor will also be funded from the incremental revenues to be generated by the government.

But there is an apparent problem with the Senate, which will tackle the measure when the new session opens on July 24. Sen. Sonny Angara, chair of the Senate ways and means committee, had earlier said the chamber would not pass the current version of the bill.

Is it opportune for President Duterte to again exert influence on the Senate to pass this vital piece of tax reform? While the net benefit to consumers might be debatable, one thing is certain: The government stands to gain some P82 billion in additional annual revenues—sadly just half of the projected P162 billion under the original proposal from the Department of Finance. That kind of money is needed to help finance the administration’s ambitious
P8-trillion “build, build, build” program to construct new roads, railways, bridges and airports.

And given the smaller net revenue gain expected from the tax package passed by the House and possibly by the Senate later this year, the government and the public must ensure that the money will strictly go to infrastructure projects to benefit consumers in the long term, and not into the pockets of corrupt officials.

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