Economists: Senate’s diluted tax package can’t help poor

An advocacy group for good economic governance has appealed to the Senate to reassess its stance on fuel taxes and other tax exemptions in order to preserve the revenue and infrastructure goals of the Duterte administration.

In a press statement, the Foundation for Economic Freedom (FEF) aired concern that the revenue projection of the Senate’s version of the Tax Reform for Acceleration and Inclusion (TRAIN) would fall short of the Department of Finance’s (DOF) overall goal to raise around P134 billion.

Sticking as close as possible to the DOF’s blueprint, FEF said, would enable the government to finance the Philippines’ growing needs as a developing country, such as accelerating infrastructure development and improving cash transfer programs for the poor and marginalized. Proceeds from the tax reform package are intended to fund key programs in infrastructure, education, and health while improving social protection programs to mitigate the adverse effects of higher consumption taxes.

The Senate’s version, for example, places fuel tax at P1.75 per liter, while the House of Representatives approved P3 per liter.

While the former’s version would look more favorable to the poor, “this would translate to a corresponding reduction of revenues, from P73 billion (House) to P40 billion (Senate),” FEF said.

“Therefore, the expected revenue from fuel tax under the Senate bill would likely be insufficient to fund proposed programs such as the targeted cash transfers and public utility vehicle (PUV) modernization. Adopting the P3-2-1 yearly increase in the fuel excise tax starting 2018 will help ensure the revenues needed to fund these proposed earmarked programs are generated.”

FEF also noted only 37 tax exemptions have so far been repealed in the Senate bill, which would yield only around P10 billion versus the estimated P61 billion if all DOF-backed 70 exemptions were scrapped.

The existing value-added tax (VAT) exemptions should be given another review to further clean up the list, the group said.

“Revenue generated from tax reform is also urgent as the government faces new spending mandated by Congress such as free tuition in state universities and colleges, free irrigation, and increases in social pension benefits,” FEF said.

“Unfortunately, the incremental yield of the present Senate bill will barely cover the estimated cost of these public services and the requirements of the government’s infrastructure program ‘Build, Build, Build.”

Moving closer to the bicameral meetings that would determine the final version of the first package of the tax program, FEF urged lawmakers to “give the country a fighting chance to fund and implement key programs while still staying within a manageable deficit level of not more than 3 percent of the GDP (gross domestic product).”

The economists said the long-term gains from the new taxes being proposed should outweigh the concern regarding political backlash.