The government plans to allocate P123 billion worth of direct cash subsidies to shield the poor from possible effects of several tax reform measures.
Finance Undersecretary and chief economist Karl Chua told reporters at the sidelines of the House committee on ways and means hearing that a third of the total net revenue gain from the tax reform proposal would be used as direct cash subsidies for the poor.
“We think for the overall proposal, we have to give back some one third in terms of subsidies. For our full proposal, it’s around P368 billion. That’s around 2 percent of gross domestic product. One third of that will be given in the form of targeted subsidies. We’re doing this in a very fair way,” Chua said.
“And that is how really our tax system should work. The money that we collect should be redistributed to those who will be needing it, so that they will benefit,” Chua said.
The Finance Department said in a presentation during the committee hearing the government projected a net revenue gain of P368.1 billion from the tax reform package.
About P122.57, or a third, is the estimated value to be directed for targeted cash subsidy.
The tax reform package includes the reduction in the personal and corporate income tax rates, the expansion of the value added tax base and the adjustment to inflation of the excise tax slapped on fuel products.
The VAT expansion is expected to raise an additional P163.4 billion while the fuel excise tax would yield an additional P178.2 billion.
Chua said under the proposal, the current P4.35-per-liter excise tax slapped on gasoline would be increased to P10 per liter. Excise tax on diesel would be raised to P6 a liter from the current zero rate.
He said the increase would be gradually implemented from 2017 to 2019.
Bayan Muna Rep. Carlos Isagani expressed concern that the excise tax on fuel would also affect the lower-income class and would result in counter production losses.
Chua said, however, that based on data, the upper-income individuals were the large consumers of fuel products.
“Then we realized that majority of the oil is consumed really by the rich who can afford cars, so many countries have moved from subsidizing to just providing targeted transfers to the poor and that is what exactly what we want to do,” Chua said.
Under the proposal, the bottom 50 percent will be protected from the price increase through conditional cash transfer program. The next 25 percent of the population or the minimum wage earners or ordinary workers would be provided with cash cards and discounts.
“For petroleum, we want the bottom 50 percent to be fully protected and we want the next 25 percent, those working as in formal workers or minimum wage workers—the ordinary working class to be protected partially through this cash card scheme or some discounts so that fair price doesn’t translate fully to them,” Chua said.
“So our intention really is to make the tax system very progressive. We want the rich to share in nation building and we want the poor to benefit more because they deserve it,” he said.