Dominguez presses Congress on passage of tax reforms

The head of the Duterte administration’s economic team on Tuesday reiterated the call for Congress to pass the comprehensive tax reform program by yearend or the country risks slowing economic growth.

As far as the second tax package on corporate income taxation and rationalization of fiscal investments was concerned, Finance Secretary Carlos G. Dominguez III told the Second Economic Journalists’ Association of the Philippines (Ejap) Economic Forum that the Department of Finance would not compromise the budget deficit.

The Tax Reform for Attracting Better and High-quality Opportunities Act or so-called “Trabaho” bill approved by the House ways and means committee this month would result in foregone revenues of about P62 billion as it aims to automatically cut the corporate income tax rate to 28 percent by 2021 without conditions.

The DOF had said that “it will be in the best interest of our country” to have a revenue-neutral tax package.

The DOF was pushing for a staggered and conditional reduction in corporate income tax rates under the proposed second package as the government could not stand to lose more revenues due to the massive physical infrastructure and social services programs that the Duterte administration wanted to fund.

Foregone revenues may widen the budget deficit, but Dominguez said that “we will not prejudice the entire economy by exceeding 3 percent of gross domestic product.”

The economic team had programmed yearly fiscal deficit ceilings equivalent to 3 percent of GDP in the near term, save for the slightly wider budget deficit cap equivalent to 3.2 percent of GDP in 2019.

Dominguez said that “if we do not modernize our tax policy this year, we cannot possibly sustain our pace of growth—we cannot become the dynamic and inclusive economy that is the norm for our region.”

The DOF already submitted all pending packages to Congress for its approval.

“To be sure, we are facing an uphill climb in the effort to pass the succeeding packages of the comprehensive tax reform program. Some of these reforms run against deeply entrenched vested interests. It is always difficult to reform tax policies on the eve of an election year,” Dominguez said.

For his part, Budget Secretary Benjamin E. Diokno said that the comprehensive tax reform program should ideally be passed before yearend.

“We are just being realistic—if we go beyond Dec. 31, we hope for another round and that’s about maybe July next year but then we will start from page one. So that’s why our target is to have all the tax measures passed before the end of the year,” Diokno explained.

Package “1B”—covering tax amnesty and other tax administration measures, including higher motor vehicle user’s charge—was removed by the Senate from the version of the first tax reform package passed by the Lower House last year.