Bringing down the personal income tax rates under the first tax reform package will make the Philippines competitive with its Asean neighbors, the Department of Finance said Friday.
However, a civil society group claimed that passing the measures in the Senate version of the Tax Reform for Acceleration and Inclusion (Train) Act would “result in worse outcomes.”
The DOF quoted executive director Trinidad Rodriguez of the state-run tax think tank National Tax Research Center as saying that the Train, which exempts those earning a taxable income of P250,000 and below from paying the personal income tax, was along the same thresholds set by other economies in the region such as Malaysia, Singapore and Thailand.
“Singapore, for instance, sets a tax-exempt threshold of 20,000 Singapore dollars, which is equivalent to P738,000, while Thailand’s threshold is 150,000 baht, or around P228,000. In Malaysia, the threshold is 5,000 ringgits or P60,000; for Cambodia, 150,000 riels or P82,188; Laos, 12 million kips or P74,400; Myanmar, 2 million kyat or P76,000,” Rodriguez noted.
The DOF said 83 percent of taxpayers would be exempt from paying personal income tax if Train is passed.
Far from perfect
The bill “will actually benefit 99 percent of families/households because of the hefty personal income tax cuts for salaried workers and the unconditional cash transfers for the poorest families,” the DOF said.
The first package of the comprehensive tax reform program will not only slash personal income tax rates but also raise taxes on consumption.
Meanwhile, as the Lower House and the Senate bicameral committee consolidates the two versions of Train, the Action for Economic Reforms said in a statement that the diluted Train of the Senate, if accepted by the House, might result in worse outcomes in the medium to long term.
“Although the House version is far from perfect, it is a good starting point for discussion,” the AER said.
“The Senate version of Train, Senate Bill No. 1592, retained the key components similar to the House but included new provisions on documentary stamp tax, capital gains, real property, coal, mining and cosmetics procedures primarily to augment lost revenues from the marked differences in tax rates and structure from the version of the lower chamber,” the AER noted.
Watered down
“Though the Senate version will be able to raise at least P119 billion additional revenues, it fails to reform the tax structure. What it did is even lower tax rates on products consumed mostly by the the rich such as on fuel, automobiles and sugar-sweetened beverages, and retain the value-added tax exemptions and expand the VAT zero rating such as on all the sales and transactions in economic, tourism and free port zones, including those not for export but for domestic consumption. This insertion on ecozones in the Tax Code will create an even bigger hole, one that can result in a loss of P20-60 billion,” according to the AER.
“The fuel excise tax was also significantly watered down in the Senate version of Train with uneven increases in rates on some products at just P1.75 while the others, some of the dirtiest fuel products like diesel, kerosene and aviation fuel are either not taxed or at only P0.33. Some fuel products with primary use in industry are taxed at higher rates of P6 (including lubricating oils, denatured alcohol and naphtha) but certain products are also completely exempted from the excise tax (including leaded gasoline, kerosene, fuel used in power generation and liquefied petroleum gas in petrochemicals),” the AER added.
“The automobile excise tax, for want of higher revenues, was condensed into two rates (10 percent for those below P1 million, and 20 percent for those above)—this sacrifices the equity that was meant to be present in the House version because the additional revenue will be coming from cheaper cars while luxury cars get a discount. For the sugar sweetened beverage tax, the rates were reduced to P4.50 per liter for purely caloric sweeteners, P9.50 per liter for high fructose corn syrup, and P4.50 per liter on non-caloric sweeteners,” the AER also pointed out.