Embrace tax reforms as a package

Interest groups, including industry associations, need to embrace the Duterte administration’s proposed tax reforms as a package instead of supporting parts of it, according to the Department of Finance’s (DOF) chief economist.

Finance Undersecretary Karl Kendrick T. Chua, in a roundtable talk with Inquirer Business, said every sector had a responsibility to make the proposed reforms work, which in the first place are intended to bring the country to a higher income status.

Chua said interest groups that “have worked hard to make their voices heard” included the cooperatives, automotive industry players and multinationals corporations.

“In the DOF, we are not here to defend a sector or promote (a particular) interest,” he said. “We’re here to raise money for this entire country’s needs and to look after this country’s future.”

Even then, Chua said the DOF was open to discussing interest groups’ concerns and considering their proposals.

“For those who want exemptions, I tell them that there is no free lunch,” he said. “If (one party is given) an exemption, somebody else would have to (take up that burden). It cannot be that everything is free from heaven.”

“Those who pay (taxes) are really the poor who are deprived of the services they should have gotten,” he added. “So I hope they (interest groups) would take the cue from that. They should understand that this is harder than just looking after just one sector.”

As for consumers’ fears that tax reform—particularly the expansion of the coverage of the value-added (VAT) tax as well as the collection of higher excise tax on oil products—would result in a faster increase in the prices of goods and services, Chua said this had no basis.

Citing data from the Department of Energy and the Philippine Statistics Authority, Chua said movements in the prices of rice had no direct relation to that of oil prices.

He said that in 2016, a 47-percent increase in the price of diesel had no impact on the price of regular milled rice from the National Food Authority (NFA) and had minimal impact on the price of well-milled NFA rice.

While pump prices of a liter of diesel jumped during the year to P30.52 from P20.75, the price of regular-milled rice went down by 0.1 percent to P36.74 a kilo and increased by a mere 0.65 percent to P41.85 a kilo for the well-milled rice.

Also, Chua said that while prices of diesel surged 76 percent year-on-year in January 2017, price upticks for other commodity groups were normal—food (3.4 percent), transportation (2.4 percent), and utilities (1.8 percent). During that month, overall inflation rate was pegged at 2.7 percent.

To mitigate the impact of higher oil taxes, a cash transfer of P300 a month for one year will be provided for the poorest 10 million households.

For operators of public utility vehicles, cash cards will be provided to offset the need for fare increases. Subsidies are also earmarked for conversion into more efficient engines and vehicle bodies.

Chua added that low-income families were protected from VAT reforms as the VAT threshold for small establishments would be raised to P3 million from P1.9 million.

He said this meant that cooperatives below this threshold would still be VAT-exempt, as are raw agricultural products.