THE proposed comprehensive tax reform program of President Rodrigo Duterte holds the key to the successful implementation of P8-trillion “Build, Build, Build” program of the government.
Finance Secretary Carlos Dominguez III sees the tax measure as the fiscal buffer that will enable the government to pursue its expansionary economic policy anchored on the infrastructure program, consisting of some 75 major flagship projects set for construction over the next five years.
The first package of the tax reform program—the Tax Reform for Acceleration and Inclusion Act (TRAIN)—aims to provide the government with sufficient funds to maintain fiscal discipline, while it invests heavily in infrastructure and in programs to expand access to social services such as health and education.
The first package was passed in the House of Representatives in May. Dominguez said the tax reform would give the government the fiscal space to pursue the expansionary measures.
Without the additional revenues the reform package will bring, the government cannot fully pursue the ambitious infrastructure program. The Department Finance plans to submit to Congress the second package of the tax reform as early as January next year.
Dominguez said failure to pass the TRAIN would “be very bad for the government’s infra program,” which, he said, would have to be “whittled down by 30 to 40 percent” without tax reform.
The government has identified 75 major infra projects to be undertaken over the next few years under its “Build, Build, Build” program.
Of these flagship projects, 18 have been approved by the National Economic and Development Authority Board. Dominguez said “when the shovels hit the ground, expect an economic growth spurt.”
Dominguez said aside from ensuring the fiscal space needed for the government’s massive spending on infra and social services, the Duterte administration also has to deal with constraints, such as the rehabilitation of Marawi City, which will likely cost at least P50 billion, and a new law mandating free tuition and other school fees for all public tertiary institutions, which to date has no clear funding mechanism.
“I assure you we will not compromise on fiscal discipline and court runaway debts to please populist demands,” Dominguez said in a recent forum organized by the Economic Journalists Association of the Philippines in Manila.
He said while pursuing tax reform, the government would continue reforming its main revenue agencies—the Bureau of Internal Revenue and Bureau of Customs.
As a result of the administrative reforms now being put in place in these two agencies, Dominguez said the BIR posted a 9.32-percent increase in collections from January to July against the same period last year. Customs, meanwhile, posted an 11.48-percent improvements in collections year-on-year.
Lower income taxes
The tax reform bill aims to lower personal income taxes to the regional average and expand the coverage of the value-added tax, increase excise taxes and improve tax administration in order to help fund the administration’s massive infrastructure program.
In his presentations before the Senate and the House, Dominguez has said that “between now and 2022, with tax reforms and improvement in tax administration, the government is “looking to improving the ratio of revenues to GDP from the current 15 percent to 17.7 percent” to bring the tax effort to the regional average.
The DoF remains optimistic the Senate could wrap up its committee hearings soon on TRAIN so that the Congress could pass the measure later this year in time for its full implementation by January 2018.
Finance Undersecretary Karl Kendrick Chua said the DoF remained on track for the Senate to approve [the TRAIN], followed by the bicameral conference committee, then the President’s approval, and the preparation of the implementing rules and regulations.
The first package—TRAIN—aims to lower personal income tax rates while, at the same time, widen the base for the value-added tax and adjust the excise tax rates for fuel and automobiles, among other reform measures.
Chua recalled that when the DoF first presented the original TRAIN in tax briefings in September last year, the general reaction to the proposal was negative.
But today, an overwhelming majority already favor the tax reform after DoF explained its benefits not only on the income tax side, but also on the spending aspect, which will focus on infrastructure, education, health and other social services.
“We have tried to reach out to everyone to [make them] see the importance of passing the entire package. So, they are now looking beyond their sector. Even the rich know that they will get hit by the 35 percent tax on their income, but as (Budget) Secretary Benjamin Diokno said, if the stock market goes to 10,000 they are going to recover it anyway. So, we hope we see this as a package because that’s where everyone benefits,” Chua said.