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Editorial

Important milestone in PH tax history

/ 05:10 AM December 25, 2017

The tax reform package signed into law by President Duterte last week is touted as the most important piece of legislation to be passed by Congress this year. Much criticism has been leveled at the higher taxes imposed on coal and other essential products, but the tax package contains one positive component that will benefit nearly all Filipino wage earners.

That component is marked by changes in the way income is taxed. The first package of the tax reform signed into law corrected the inequity of the Philippine tax system by reducing income taxes for 99 percent of income taxpayers, giving them much-needed relief after 20 years. Starting in 2018, every individual’s first P250,000 salary will be tax-free. Each income bracket will also experience a reduction in taxes to be paid starting next year. Small and micro taxpayers will also benefit as the new law simplifies the process with the replacement of income and percentage taxes with a flat tax of 8 percent of gross sales.

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Finance Secretary Carlos Dominguez III has described it as “the biggest Christmas and New Year’s gift that the Duterte administration is giving to the people.” For the poor, the government is providing targeted cash transfers that will be sourced from higher consumption taxes to be imposed on the wealthy. These include additional taxes on mining, tobacco, cosmetic procedures and cars, among others.

At the same time, the tax package will raise revenues to fund the government’s priority and social infrastructure programs aimed at reducing poverty from 21.6 percent to the targeted 14 percent by 2022. Seventy percent of the incremental revenues of about P120 billion from the tax package will go to infrastructure and “build, build, build” programs, and the balance to social services, including free tuition in state universities and
colleges and expanded healthcare services.

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Aside from these, Congress is expected to pass by the first quarter of 2018 a so-called tax reform package “1B,” which will include a tax amnesty and other measures that were excluded from the first tax reform package that the President signed into law last week. According to Dominguez, the legislature had committed to pass the second part of the first tax package by the first quarter of 2018. The government is considering amnesty for taxpayers with deficiencies in their payments of property taxes, estate taxes, regular taxes such as income taxes and
value-added tax, as well as amnesty on tax cases pending in courts. This will provide relief to individuals and businessmen disputing the tax assessments made on them.

A second tax reform package is likewise scheduled to be filed in the first quarter of next year to lower corporate income taxes, among other things. This is aimed at helping make the Philippines an attractive investment destination; with the entry of new investors, new jobs are expected to be generated.

Critics are correct in saying that the new taxes in the first tax reform package will raise the prices of basic commodities and services. But per government and private computations, these would be minimal and would be more than covered by the savings that wage earners will make from the lower income tax rates.

For Dominguez, Congress’ ratification of the first tax reform package is an important milestone in the country’s history. It is also only the first of five packages that are intended to fix the structural problems of the tax system that has long been described as unfair, complex and inefficient. This tax reform will also raise the revenues needed to make positive change in the lives of Filipinos by building the
infrastructure—such as airports, bridges and highways—needed to boost economic activity in the regions. More investments mean more jobs, and more jobs mean more families getting out of poverty.

But time will tell if this is indeed the administration’s biggest Christmas gift to Filipinos.

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TAGS: Christmas, President Duterte, Tax reform
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