P48-B subsidy awaits poor in gov’t tax plan

The government will give away P48 billion in direct subsidies to the poorer half of the population who would be affected by increases in prices of basic goods as a result of the government’s tax reform program, the Department of Finance (DOF) said Friday.

The first phase of the Duterte administration’s tax plan, currently being discussed as House Bill No. 4774, includes the proposed hike in excise taxes slapped on fuel products. The DOF described it as “pro-poor as it shifts the tax burden to rich families by taxing their consumption rather than income, so that additional revenues raised from this effort could be used for targeted transfers to indigent families and for massive public spending on infrastructure and human capital development.”

It said the bill proposed to set aside on the first year of the implementation of the tax plan some P48 billion for targeted transfers to “benefit the bottom 50 percent of the population and shield them from the impact of the fuel excise tax adjustment and other revenue compensating measures,” Finance Undersecretary Karl Kendrick T. Chua said.

The poorest 50 percent, or about 10 million households, would be benefiting from unconditional cash transfers and the reintroduction of the Pantawid Pasada program. Among others, the subsidies would come in the form of fuel price discounts for public utility vehicles, Chua said.

“The direct transfers to the country’s 10 million poorest families would mean an additional P3,600 annual income increase for them,” according to Chua.

HB 4774, filed in January, also contained the DOF’s proposal to lower personal income taxes, broaden the value-added tax base by cutting down on exemptions, increase excise taxes on petroleum and automobiles, as well as reduce the estate and donors’ tax rates.

HB 4774 proposed to increase the fuel tax in three tranches—P3, P2 and P1 during the first three years. The government would then implement an annual 4-percent indexation of rates beginning the fourth year to account for inflation.

Last Tuesday, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo told a Senate ways and means committee hearing that the BSP supported the tax reform as it would add 0.6 percentage point to the gross domestic product (GDP) growth this year and 0.2 percentage point in 2018. The government targets a GDP growth of 6.5-7.5 percent this year before further expanding by 7-8 percent yearly starting next year until 2022.

“The lowering of income and corporate taxes will translate immediately to higher consumption, and in the part of the government, [higher spending] on infrastructure, human development and social protection for the poor. Tax reform will impact immediately on consumption and investment,” Guinigundo told reporters.

As the first package being pitched by the DOF would also entail slapping new or higher taxes on consumption, Guinigundo said it could add 0.5 percentage point to the inflation rate this year as well as 0.7 percentage point in 2018. —Ben O. de Vera