Bureau of Internal Revenue (INQUIRER FILE PHOTO)
MANILA — A dozen of the country’s former chief economists and finance chiefs on Monday said the Department of Finance’s proposed tax policy reform program would help the country achieve inclusive growth as well as slash poverty en route to becoming a high middle-income country by 2040.
In a joint statement released by the DOF, seven of its former secretaries, seven former undersecretaries, as well as five former director-generals of the state planning agency National Economic and Development Authority, said that they “fully endorse” the DOF’s tax reform packages.
“We, the former secretaries and undersecretaries of the DOF and the NEDA fully support the DOF’s comprehensive tax reform program as a long needed corrective (measure) to our tax system’s structural weaknesses and as a tool to achieve inclusive growth and transformative poverty reduction in our country,” they said in a manifesto.
“The DOF’s proposed comprehensive tax reform is progressive, timely, and well-crafted to achieve the vision of a prosperous Philippines free of poverty. For these reasons we strongly support the reform and urge the public to do the same,” they added.
The signatories to the manifesto included the following former DOF chiefs: Juanita Amatong, Jose Isidro Camacho, Roberto De Ocampo, Jesus Estanislao, Jose Pardo, Cesar Purisima and Cesar Virata.
The following former DOF undersecretaries also signed the manifesto to support tax reform: Joel Bañares, Romeo Bernardo, Cornelio Gison, Lily Gruba, Milwida Guevara, Jose Emmanuel Reverente and Florencia Tarriela.
Former NEDA directors-general Arsenio Balisacan, Emmanuel Esguerra, Cielito Habito, Felipe Medalla and Romulo Neri said they were backing up the DOF’s tax reform proposal, which would help transform the country in one generation or by year 2040 under the so-called AmBisyon Natin 2040 vision.
Launched in 2016, AmBisyon Natin 2040 was aimed at tripling Filipinos’ per capita income to $11,000 in 24 years’ time by sustaining at least a 6.5-percent annual gross domestic product growth alongside the implementation of policies that would make the Philippines a high-income country by 2040.
A survey conducted early in 2016 showed that the majority of Filipinos aspire for a “simple and comfortable life,” which NEDA had said reflected middle-class lifestyle—earning enough, educating all children until college, owning a car, owning a medium-sized house, finding time to relax with family and friends, owning a business, and being able to travel around the country.
Last October, President Duterte signed Executive Order No. 5, which adopted the AmBisyon Natin 2040 as the long-term vision for the Philippines, such that “by 2040, the Philippines shall be a prosperous, predominantly middle-class society where no one is poor.”
The 19 former officials said tax reform would be an integral part of the goal to slash poverty. The Duterte administration wanted to cut poverty incidence to 14 percent by 2022 from 21.6 percent last year through its 10-point socioeconomic agenda, which included tax reform.
“Overall, tax policy reforms are needed to make the tax system fairer, simpler, and more efficient, to put more money in people’s pockets, and encourage investment, job creation, and poverty reduction, while making our country more competitive regionally,” the former DOF and NEDA officials said.
“We share NEDA’s goal—that by 2040, the Philippines will be a prosperous, predominantly middle-class society where no one is poor, and our people will live long, healthy lives, be smart and innovative, and live in a high-trust society. The Philippine government aims to triple real per capita incomes and eradicate hunger and poverty by 2040, if not sooner. We fully endorse the DOF’s tax reform as part of the solution toward achieving these aims,” they added.
The former officials called for the immediate passage of the tax reform proposals. The DOF quoted them as saying that “tax administration and budget reforms alone will never raise the high level of revenues needed for the unparalleled investments in infrastructure, human capital and social protection for the poor and other vulnerable sectors.”
Tax reform will also reverse the tax system’s current weaknesses, which they said “make our economy less competitive relative to our neighbors and deprive our people of deeply needed investments to improve their lives.”
In particular, the 19 former officials expressed support the first package of the DOF’s tax policy reform program.
“We support DOF’s tax reform package 1, which seeks to equitably raise around 1 percent of GDP (gross domestic product) in additional revenues to fund the Duterte administration’s 10-point agenda,” they said.
“The personal income tax reform is long overdue and is a welcomed move. This needs to be complemented by revenue enhancing measures to ensure that the poor and vulnerable are provided better education and health services, as well as benefit from better infrastructure,” they added.
To compensate for lower personal income taxes, the former economic managers said they also “support the increase in oil and automobile excise taxes as a very progressive means of raising revenues and addressing the negative externalities of pollution and traffic congestion as families optimize the purchase and use of cars.”
“Given that the top 10 percent of households (comprising the richest twi million households) account for about 50 percent of all petroleum consumption, while the top 1 percent (comprising the richest 200,000 households) account for 13 percent of all petroleum consumption, raising oil excises means that we stop subsidizing the consumption of the rich and instead use the incremental tax revenues to fund infrastructure and protect the poor,” according to the former DOF and Neda officials.
According to the manifesto, they “also support the plan to provide highly targeted transfers to the poor and vulnerable to mitigate the impact of higher oil, food, and transportation prices” once higher oil prices due to increased excise taxes set in.
Also, “broadening the value-added tax (VAT) base will remove the large number of exemptions currently contributing to inequity and massive leakages,” they said, adding that such would be “consistent with the international best practice of limiting exemptions to the necessities of life.”
Before Congress went on a Christmas break, the DOF pitched a revised version of the first package of its comprehensive tax reform proposal, which will now include mandatory marking of oil products as well as the grant of absolute amnesty on estate tax deficiency.
A copy of the revised draft bill obtained by the Philippine Daily Inquirer said the first package “seeks to lower personal income taxes, broaden the VAT base, adjust excise taxes on petroleum and automobiles, reduce the estate and donors tax, and provide an amnesty to past estate tax cases.”
Under the first package, the following tax administration measures were to be pursued: mandatory use of fuel marking; recognition of e-receipts; mandatory interconnection of large and medium firms point of sale machines and accounting system with the Bureau of Internal Revenue; mandatory use of GPS locks when transporting cargo from ports to economic zones and free ports; shift to quarterly VAT and percentage tax filing to improve compliance; and relaxation of bank secrecy for fraud cases.
While it was initially supposed to be included in the succeeding tax reform packages, the DOF is now moving to include in the first package the reduction of estate and donors tax to 6 percent, while also providing absolute amnesty on past estate taxes that had been unpaid.
The bill retained the salient provisions of the original first package as proposed by the DOF, including adjusting tax brackets to correct “income bracket creeping”; reducing the maximum personal income tax rate to 25 percent over time, save for the “ultra-rich” who would be slapped a higher 35 percent; and shifting to a simpler modified gross system.
As lower personal income taxes would result into foregone revenues estimated at P127.4 billion by 2018, the DOF plans to offset and gain P301.6 billion by expanding the VAT base by limiting exemptions to necessities such as raw food, education and health products and services; increasing the excise tax slapped on all oil products and indexing them to inflation; as well as jacking up excise tax on automobiles.
The government stands to generate a net revenue gain of P174.2 billion from the first package by 2018, the first year of implementation being eyed by the DOF as the bill was targeted enacted into law in 2017.
Recognizing that the upward tax adjustments will impact on the poor, the bill also proposed earmarking for social protection.
The Duterte administration’s tax policy reform program, aimed at augmenting the P1 trillion in priority investments needed by the administration in the next six years to sustain at least 7-percent economic growth until 2040 as well as slash the poverty incidence, will come in six packages.
The second package, which would likely be introduced in 2018 or after the Sin Tax Reform Law matures next year, would levy taxes indexed to inflation on sweetened drinks, as well as further hike the excise tax slapped on alcohol and tobacco products.
Based on earlier DOF estimates, the “health tax” package would generate P120.4 billion in revenues for the government by 2019—P71.7 billion from alcohol and tobacco, on top of P48.7 billion from sweetened beverages.
The four other tax packages include those on corporate income tax and incentives; property tax; capital income tax; and other taxes (carbon tax, “fatty” food tax, lottery and casino tax, as well as mining tax). They are eyed for passage in the next two to three years.
According to the Cabinet-level, interagency Development Budget Coordination Committee (DBCC), the proposed 2018 national budget, pegged at a record-high of P3.84 trillion, will be contingent on Congress’ approval of the proposed first tax reform package, as government revenues are projected to hit P2.913 trillion with the help of additional taxes to be introduced to offset the planned lowering of personal income tax rates.
“The projected proceeds of the tax reform package—around P206.8 billion—will fund the government’s big-ticket development projects, particularly the infrastructure program,” the DBCC said in a recent report. SFM