New taxes loom before Duterte steps down in 2022
MANILA, Philippines — Filipinos should brace for possible new or higher taxes before President Rodrigo Duterte steps down in 2022 so that the government can repay the bigger debt it incurred to better respond to the health and socioeconomic crises inflicted by the COVID-19 pandemic.
“I think sometime in the late 2021 or early 2022, we will start looking at additional revenues to pay for the heavy indebtedness that we are incurring this year,” Finance Secretary Carlos G. Dominguez III told the Senate finance committee on Wednesday.
Dominguez said foreign financing for COVID-19 response amounted to $9.9 billion to date.
With programmed gross borrowings of P3 trillion in 2020, the national government’s outstanding debt will hit P10.16 trillion by yearend, jacking up the debt-to-gross domestic product (GDP) ratio to 53.9 percent from a record-low of 39.6 percent last year.
“With our historically high credit ratings, we quickly accessed emergency financing from our development partners and the commercial markets at very low rates, tight spreads, and longer repayment periods… These borrowings will help cover our revenue shortfall resulting from the slowdown of economic activity due to the lockdowns,” Dominguez said.
Asked by the Inquirer what were the new tax revenue sources which the Department of Finance (DOF) was considering, Dominguez replied: “In the next few months, we will be concentrating on improving tax administration and passing the remaining tax packages.”
In its “We Recover as One” report released in May, the state planning agency National Economic and Development Authority (Neda) said that “with the expected shift of the private sector to online transactions, the government needs to establish a digital taxation framework.”
“There is also a need to invest in digital taxation infrastructure,” Neda had said.
Pending in Congress was a bill aimed at collecting value-added tax (VAT) on video and music streaming, online shopping sites, as well as advertisements on social media.
As for the Duterte administration’s comprehensive tax reform program, still pending in Congress were the corporate recovery and tax incentives for enterprises (Create) act; the passive income and financial intermediary taxation (Pifita) bill; real property valuation and assessment reform; higher motor vehicle user’s charge; a new mining tax regime; and general tax amnesty with lifting of bank secrecy for tax fraud cases and automatic exchange of information.
The DOF had successfully spearheaded the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which rationalized personal income tax rates while slapping new or higher taxes on consumption; the ongoing delinquencies and estate tax amnesties; as well as higher “sin” taxes on alcohol, tobacco and e-cigarette products.
Dominguez told senators that while the Create bill will result in P650 billion in foregone revenues during the next five years as the corporate income tax rate—currently the highest in Asean—shall be slashed to 20 percent from 30 percent at present, the tax savings that companies would enjoy were expected to stimulate the economy by keeping their workers employed and paid.
The lower taxes to be levied on firms coupled with the fiscal perks offered under Create were also hoped to attract additional foreign investments that will generate more jobs and tax revenues as well, Dominguez added.
“Over the past four years, the DOF has pushed for the modernization of our tax policies… Through bold reforms in tax policy and administration, we were able to bring up our revenue effort to 16.1 percent of GDP last year from 15.1 percent in 2015. This is our best performance in more than two decades,” Dominguez told senators.
In turn, Dominguez said the country’s two biggest tax-collection agencies—the bureaus of Customs (BOC) and of Internal Revenue (BIR)—“continue to put on the fast lane the digital transformation of their offices to make tax compliance more convenient and accessible to all.”
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