The implementation of the proposed tax policy reform program to be pitched by the Duterte administration to Congress next month is targeted to generate P600 billion in additional revenues by 2019 while also fostering a simpler, fairer and more efficient system for taxpayers, documents obtained by the Inquirer showed.
The program, aimed at augmenting the P1 trillion in priority investments needed by the administration over the next six years to sustain at least 7-percent economic growth until 2040 as well as slash the poverty rate to 17 percent by 2022 from 26 percent at present, will come in four main packages, the first of which will reduce personal income tax while raising consumption taxes by next year.
The proposed policy packages, all constituting a bill that balances trade-offs, will allow the government to raise P600 billion or 3 percent of gross domestic product (GDP) in 2019 prices, of which P400 billion or 2 percent of GDP will come from tax policy reform measures.
The remaining P200 billion will be generated through tax administration reforms to be implemented at the bureaus of Customs and of Internal Revenue, including com batting smuggling and reducing compliance costs to increase taxpayer satisfaction, respectively.
The first tax policy package, aimed for passage in January next year, will adjust personal income tax brackets to correct so-called income creeping; reduce the personal income tax maximum rate to 25 percent (from 32 percent at present) over time, except for the highest income earners, and shift to a simpler, modified gross system.
This will entail six income brackets:
those earning zero to P250,000 a year will be slapped P2,500 in income tax in the first year;
more than P250,000 to P400,000 will be charged P2,500 plus 20 percent of the excess over P250,000;
more than P400,000 to P800,000 will pay P32,500 plus 25 percent of the excess over P400,000;
more than P800,000 to P2 million will be taxed P132,500 plus 30 percent of the excess over P800,000;
more than P2 million to P5 million will pay P492,500 plus 32 percent of the excess over P2 million, and
more than P5 million will be taxed P1.45 million plus 35 percent of the excess over P5 million.
The tax rate for those earning P250,000 and below annually, which account for 83 percent of taxpayers in 2013, will be kept in the second year onwards, while the tax rates for the five other income brackets will have downward adjustments.
To compensate for the foregone revenues from lower personal income tax take, earlier pegged by the Department of Finance at P139 billion, the Duterte administration proposes the following compensating measures:
expand the value-added tax (VAT) base by limiting exemptions to raw food as well as other necessities such as education and health;
increase the excise tax on petroleum products and index it to inflation;
levy a tax on sugary products;
relax bank secrecy for fraud cases, and
include tax evasion as a predicate crime to money laundering.
The proposed excise tax on sugary products—domestic raw sugar, refined sugar as well as imported sugar and sugar substitutes—at P5 a kilo will generate P18.1 billion.
According to the documents, the government will “use targeted programs to protect the poor and vulnerable” to be affected by higher consumption taxes, while noting that “low income consumers and businesses are already protected by the marginal threshold, which can be adjusted if needed.”
“The bottom 50 percent of households will be fully protected through social protection schemes,” the documents said, including higher pension or conditional cash transfer amounts with rice subsidies for senior citizens; higher PhilHealth coverage and benefits for persons with disabilities; more lifeline subsidy for low-income electricity consumers, and discount on public utility vehicles for commuters.
In terms of revenue impact, the first package will bring about a net gain of P220.7 billion.
The second package planned for passage in June next year will reduce the corporate income tax rate to 25 percent from 30 percent over time and simplify provisions to improve compliance.