Trade groups unhappy with tax reform

Some of the biggest local and foreign business chambers in the country have expressed reservations about the final version of the first tax reform package, warning that some of the tax changes imposed would have a “negative impact” on both consumer welfare and the country’s competitiveness.

In separate phone interviews with the Inquirer, top officials of the Philippine Chamber of Commerce and Industry (PCCI), American Chamber of Commerce of the Philippines (AmCham) and the European Chamber of Commerce of the Philippines (ECCP) noted that they were not entirely satisfied with the final tax package.

Some of the concerns they raised echoed similar reservations they had during the earlier versions of the package as respectively filed in both chambers of Congress. The newest addition to this is their concern with the three-year increase in the coal excise tax.

Congress has agreed to raise the coal excise tax from the current P10 a metric ton to P50 a metric ton in the first year of implementation, P100 in the second and P150 in the third and succeeding years. While this was substantially lower than the version passed by the Senate, this still struck a nerve among business leaders.

PCCI president George Barcelon, who previously opposed any form of increase in the coal excise tax, said that the government was better off stretching the period of implementation to five years, putting on hold the increase for every two years.

Otherwise, he said the final version might not make the country attractive to prospective investors especially when the Philippine economy had lately been gaining traction in the international community.

“We were hoping that they would stretch the implementation and not rush it. We could stretch it up to five years,” he said. He said three years was just too short.

Since businesses think long term before investing, they would already be accounting for the P150 increase scheduled for the third year—a prospect which might be repelling for some businesses, he said.

An increase in coal excise tax would negatively affect electricity costs, aggravating the country’s position as one of the countries in the region with the most expensive power costs, he added. He expressed the same reservations with the petroleum excise tax.

For its part, the AmCham said that it was pleased with the final version, especially since it allowed for more disposable income while raising revenue for infrastructure development.

However, AmCham senior adviser John Forbes said that they supported the excise tax increases required for sufficient revenue collection “except for the coal and sweetener provisions.”

“The increased coal tax, unfortunately, will make electricity somewhat more expensive, which weakens competitiveness,” he said.

The House of Representatives has previously passed its version of the tax package that charged sugar sweetened beverages (SSB), placing an explicit distinction between SSBs that use imported sugar (P20) and SSBs that use locally sourced material (P10).

The Senate, on the other hand, only slapped rates depending if they use caloric/noncaloric sweeteners or high fructose corn syrup (HFCS), without any explicit distinction regarding its source or origin.

The final consolidated bill in Congress imposed a P6-a-liter tax for beverages using caloric and noncaloric sweeteners, and P12 for beverages using HFCS.

“The sweetener provision discriminates against an imported product and may be noncompliant with the WTO. The bill also has excellent provisions that can resolve the problem of VAT refunds when implemented,” Forbes said. While the bill did not explicitly say it would tax imported sugar differently, Forbes said that around 95 percent of the HFCS the country uses was from China.

ECCP president Guenter Taus called the final bill an “important step towards inclusive and equitable growth,” but the chamber still had its reservations.

“Naturally, we have some concerns as to some of the finer points, including excise taxes on automotive, sugar sweetened beverages and coal as these may have a negative impact on the affected industries and ultimately the end consumer. We look forward to continuing our close work with the different relevant government agencies to arrive at the best solution for all,” he said.

In a statement Wednesday, Finance Secretary Carlos Dominguez III said the Department of Finance was pleased with the bicameral conference committee’s version of the first tax reform package.

Asked by reporters about the insertion of the coal tax increase, Dominguez replied: “We did not propose it in package one. However, we respect the right of the legislature to introduce taxes as they see fit, it’s part of the law and we accept that.”

While the DOF noted that the coal tax increase was supposed to be part of the fifth package, the prevailing P10 excise tax on coal has been unchanged since 1988 while the domestic industry has been exempt from paying such tax since 1976.

For Dominguez, the higher coal tax to be slapped under the first tax reform package “is not considered a new tax, [as] the bicam only adjusted the three-decade-old coal tax rate.”

Meanwhile, the civil society group Action for Economic Reforms raised red flags on the first tax reform package, including alleged loopholes in the value-added tax (VAT) system, insertion of a meager tobacco tax, protection of the aviation industry due to just a small increase in aviation fuel tax as well as the impact of doubling the documentary stamp tax on capital markets, among others.