Quid pro quo: DOF OKs income tax relief in exchange for revenue package

If Congress will not pass the revenue-generating measures aimed at compensating for the foregone revenues from the planned lowering of income tax rates, President Duterte will not sign the tax reducing measure into law, Finance Secretary Carlos G. Dominguez III said.

“I’ve already told Congress: if only the tax-reducing measures are passed, they can bet their lives … it’s not going to be signed into law. It’s got to be a package deal,” Dominguez said in a forum held at the World Trade Center last week, in reaction to threats of some lawmakers to support only populist measures.

Dominguez said the Department of Finance’s (DOF) decision to introduce in six packages the tax policy reform program, which includes slashing the income taxes, would ensure these would be passed in a fast manner.

“The last time they did a total tax reform law, it took them five years to get it done, from 1992 to 1997. But we don’t have that much time. So we split it up and hopefully, by the end of three years, we will get it all done,” Dominguez said.

House Bill No. (HB) 4774 filed by House ways and means committee chair and Quirino Rep. Dakila Carlo E. Cua early this month contained the DOF’s proposal to lower personal income taxes, broaden the value-added tax base by cutting down on exemptions, increase excise taxes on petroleum and automobiles, as well as reduce the estate and donors’ tax rates.

Unlike the earlier version of the first package of the DOF’s tax policy reform program that was pitched to Congress last September, HB 4774 will no longer remove the value-added tax exemption currently being enjoyed by senior citizens and persons with disabilities.

Instead of the initial proposal to implement a P6 one-time excise tax on fuel, HB 4774 proposed that it be divided in three tranches of P3, P2 and P1 during the first three years. The government will then implement an annual 4-percent indexation of rates thereafter to account for inflation.

HB 4774 will also push for a tax on lottery and will lower the estate and donors’ taxes to a flat rate of 6 percent.

The bill also retained the key provisions of the DOF draft, which included: adjusting personal income tax brackets to correct “income bracket creeping”; reducing the maximum personal income tax rate to 25 percent over time, save for the “ultra-rich” who would be slapped a higher 35 percent; and shifting to a simpler modified gross system.

Based on the DOF’s computations, the first package will result in a net revenue gain of P162.5 billion in the first year of implementation as the P139.6 billion in foregone revenues from lowering the personal income as well as estate and donor taxes would be offset by the P302.1-billion gain coming from the VAT base expansion (P92.5 billion), higher automobile excise (P31.4 billion), higher excise taxes on petroleum (P120.9 billion) and P57.4 billion in complementary revenues from other revenue measures.