Tax reform: No pain, no gain

One of the campaign promises of President Duterte is an overhaul of the tax system. Accordingly, the Department of Finance presented its tax reform proposal in September 2016, just four months after Mr. Duterte was swept into power.

The House of Representatives, after several public hearings and long deliberations, passed its own version in May 2017. Despite some dilution, the House-approved version was estimated to generate P134 billion to fund the government’s ambitious infrastructure plan and social programs.

The ball is now in the hands of the Senate, whose version is still under deliberation. Initial estimates show that the bill filed by ways and means chairman Sonny Angara would generate significantly less than the House version.

To ensure that the tax measure would generate sufficient revenues to fund key programs in education, health, and particularly infrastructure, some provisions in the Senate bill need to be reviewed further.

We support the Foundation for Economic Freedom’s appeal to preserve the revenue goals for the Tax Reform for Acceleration and Inclusion (TRAIN) by: a) adopting the P3-2-1 yearly increase in the fuel excise tax to ensure the revenues generated would be sufficient to fund proposed earmarks, such as the targeted cash transfers and public utility vehicle modernization; and b) cleaning up further the list of VAT exemptions and retaining only those that are fair and necessary.

In addition, we urge the Senate to seriously consider adding to Package 1 the adjustment of tobacco and alcohol or “sin” taxes.

The health implications of smoking and excessive drinking are undisputed worldwide. Even with the passage of sin taxes in 2012, the Philippines still has not yet taxed tobacco and alcohol to the same extent as our Asean peers like Singapore and Thailand.

Increasing tobacco tax in 2018 by P48 to P60 would generate an incremental revenue of about P56 to P68 billion. The higher the tobacco tax rate, the more revenues the government can raise to augment the budget necessary to attain universal health care.

Further, increasing taxes on cigarettes will be consistent with and complementary to Mr. Duterte’s Executive Order No. 26, which imposes a nationwide smoking ban in public places. We share the position of former health secretaries Esperanza Cabral, Enrique Ona, and Jaime Galvez-Tan that delaying an increase in tobacco tax will push more people to smoke every year.

We understand the political concern of some legislators regarding the proposed new taxes. However, unlike the Expanded Value Added Tax (which we pushed for under former president Gloria Macapagal Arroyo) that was perceived by the public as purely pain, the Duterte administration’s TRAIN is a combination of pain and gain. Over the long term, the gains should far outweigh the political backlash that legislators are currently concerned about.

At the end of the day, Filipinos should view taxes as more than just a source of revenue for the government. It is also an opportunity for citizens, regardless of how much we earn, to participate in nation-building. If the new taxes being proposed are advocated from this perspective, we can perhaps tone down the opposition — whether coming from legislators or ordinary consumers — and get more Filipinos on board the TRAIN.

GARY B. TEVES, gbteves@yahoo.com