New taxes on ‘fatty’ food, luxury goods eyed

“Fatty” food, luxury items as well as casino and lotto winnings would be slapped taxes if the Duterte administration’s proposed tax policy reform program, which would result in a net revenue gain of P368.1 billion to the government by 2019, prospers in Congress.

Documents obtained by the Inquirer showed that among the new revenue generating measures being eyed for implementation within the next three years were “fatty food tax;” luxury tax on cars, jewelry and yachts; mining tax; carbon tax, as well as  casino and lottery tax.

The Duterte administration also intends to revisit the sin taxes on tobacco and alcohol products.

The document did not specify what constituted fatty food and the additional amount of taxes to be imposed on luxury items.

This package, which the documents said should be passed by Congress “as needed,” will bring about P109.4 billion in net revenue gains, as these will mostly be new taxes.

By 2019, mining tax would generate P3.5 billion; luxury tax, P7.7 billion; sin tax, P38.2 billion, and P20 billion each from fatty food tax, carbon tax, and lottery and casino tax, according to rough estimates of the Department of Finance.

The Duterte administration’s proposed tax policy reform program, which is currently being firmed up for submission to Congress next month, will have four main packages: personal income tax and consumption; corporate income tax and incentives; property tax, and capital income tax.

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 maximum personal income tax rate over time to 25 percent from 32 percent at present, and shift to a simpler, modified gross system.

To compensate for the foregone revenues arising from the lowering of personal income taxes estimated at P139 billion, the Duterte administration wanted to 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; impose a P5 per kilo tax on sugary products (domestic raw sugar, refined sugar as well as imported sugar and sugar substitutes); relax bank secrecy law for fraud cases, and include tax evasion as a predicate crime to money laundering.

In terms of revenue impact, the first package will bring about a net gain of P220.7 billion, as the loss from reforming the personal income tax system will be compensated by gains of P163.4 billion from VAT base expansion, P178.2 billion from higher oil excise tax, and P18.1 billion from “sweet tax.”

The second tax reform package eyed for the passage in June next year will reduce the corporate income tax rate over time to 25 percent from 30 percent at present and simplify provisions to improve compliance.

Offsetting measures for lower corporate income tax include rationalizing fiscal incentives to make them transparent, targeted, performance-based and time-bound; putting sunset provisions to existing incentives; expanding the coverage of the Fiscal Incentives Review Board to include all incentive recipients beyond state-run corporations; replacing the 5-percent gross income earned tax rate to a reduced corporate income tax rate of 15 percent; strictly limiting VAT zero-rating to direct exporters; giving full VAT refund in cash, and abolishing tax credit certificates.

The second revenue package, however, will result in a net loss of P1 billion, as the projected loss of P34.8 billion from lower corporate income tax is more than the estimated P33.8-billion gain from fiscal incentives rationalization.

The third package will lower the rate of the estate and donor’s tax as well as transaction taxes on land (DST, transfer tax and registration fees), while rationalizing the valuation of properties, increasing valuation closer to market prices, as well as reviewing valuation every three years and adjusting it accordingly.

This package on property tax is eyed for approval in June 2018, and will bring P40 billion in net revenue gain.

The fourth tax policy package, hoped to be passed by Congress in January 2019, will cut the tax on interest income earned on peso deposit and investment to 10 percent from 20 percent at present. To compensate, the government plans to harmonize capital income tax rates for dollar deposits and investment, dividends, equity as well as fixed income rates toward 10 percent, while also increasing the tax on stocks traded in the stock market to 1 percent on gross selling price from 0.5 percent at present.

The capital income tax package will result in a P1-billion net revenue loss.