The Department of Finance of the Duterte administration has created a National Expenditure Program that seeks to embody the three key elements of sound fiscal policymaking, namely the provision of as much physical and social infrastructure as possible, the taxation of activities and institutions whose nature and income-generating capability make them appropriate objects of taxation and the reduction of the incidence of income and wealth maldistribution.
To redeem candidate Rodrigo Duterte’s campaign promise to expand and improve this country’s physical and social infrastructure, Neda (National Economic and Development Authority) has drawn up a P3.327-trillion NEP. The program embodies hefty increases in the planned spending of the frontline infrastructure agencies—the Department of Public Works and Highways, the Department of Transportation and Communications and the Department of Energy. These increases are coming on top of a very large increase in the planned spending of the Department of Education and substantial increases for other departments, especially the Department of National Defense and the Department of Social Welfare and Development (DSWD). Not to be left behind, the Office of the President has been allotted a truly hefty planned-spending total—P10 billion, which is around four times larger than this year’s 2016 figure.
How to finance P3.327 trillion worth of expenditures? The Duterte administration’s key economic managers, like all government fiscal policymakers have three options: (1) collect revenues from existing and proposed taxes sufficient to keep the national budget (the General Appropriations Act or GAA) balanced, (2) go into deficit-spending mode and finance the deficit with borrowings and (3) underspend in order to keep the national budget balanced. Obviously, the first option is the only one that is advisable from the fiscal-stability standpoint.
To fulfill the second objective of a sound fiscal program—the taxation of activities and institutions whose nature and/or income-generating capability make them appropriate targets for taxation—DoF intends to seek Congressional approval of a number of new taxes and tax charges that are expected to yield additional reviews totaling P566.40 billion.
The impending proposals, which are contained in five packages, seek to raise the excise tax on oil; impose a tax on “sugary” products; restrict to health, education and basic foods the value-added tax privilege enjoyed by senior citizens; raise the marginal threshold for low-income businesses and consumers; rationalize the structure of fiscal incentives; rationalize the valuation of properties so as to bring valuations closer to market prices; raising the taxes on tobacco and alcohol (the so-called sin taxes); impose a luxury tax on yachts, jewelry and motor vehicles; place a levy on mining and carbon emission; and impose taxes on fatty foods and lottery and casino winnings.
The loss-of-revenue part of the tax program includes estimated revenue losses expected to result from the lowering of the corporate income tax to 25 percent (from 30 percent); replacement of the 5 percent tax on gross income earned with a reduced corporate income tax of 15 percent; limitation of VAT zero-rating to direct exporters; reduction of the estate and donor’s taxes; lowering of the documentary stamp tax, transfer tax and registration fees; and reduction to 10 percent (from 20 percent) of the tax on interest income from peso deposits and investments.
Other parts of the tax program are proposals to Congress for the loosening of the Bank Secrecy Act in fraud cases and the inclusion of tax evasion as a predicate crime in relation to money laundering activity. In addition, there will be no more issuances of tax credit certificates, which in the past have been used for fraudulent purposes.
Testifying recently before the Senate Ways and Means Committee, Secretary of Finance Carlos Dominguez III was heard to say: “in the end this (tax program) is not simply about revenues and expenditures. This is about building a nation.”
That’s why the Duterte administration must get its numbers right.
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