Albay’s Second District Rep. Joey Salceda filed this week House Bill 4688, the Tax Reform for Acceleration and INclusion or TRAIN, more than three months since he presented the idea to Congress on September 3. It will create wealth for the poor, Joey says, to the tune of P156 billion a year.
Joey is one of the country’s best economists and thinkers. He is a conscientious congressman. So when he files a measure like HB 4688, you can be sure it is a substantial piece of legislation.
HB 4688 targets the rich by shifting their tax burden from income to consumption.
The rich will now pay at least 25 percent their income as tax. Their present average tax (with all kinds of exemptions): 1.8 percent. The rich will also pay more in taxes on their cars—20 percent for value above P600,000, from zero today. Diesel on their cars will be taxed P6 per liter; gasoline at P10 per liter. Since SUVs of the rich are usually diesel-fed, and diesel is hardly taxed, the government subsidizes the rich’s ostentatious display of wealth.
Meanwhile, the average wage earner will pay less. He presently pays an average of 20 percent on his income which is withheld at source. The tax will be zero if he earns only P218,832 a year or P18,236 a month. A clerk who makes P231,292 will also pay zero instead of paying P12,673 at present. A call center agent who makes P273,000 a year will reduce his tax from P9,209 at present to P1,567, an 83-percent reduction.
What about the very poor? They will get cash, P6,000 subsidy a year, through their ATMs. Without conditions, unlike at present.
According to Joey, the key features of his bill are:
1. Full and immediate adjustment of Personal Income Tax in the first year. “The PIT income bracket creeping is one of the most horrific and protracted (instances of) social injustice,” Joey winces.
He laments that the Philippine PIT is the most regressive in the entire Asia. “And we do this to the most dependable pillar of taxes—the employees whose share of nation-building is automatically withheld, with compliance at almost 99 percent since they have no choice,” he says. The net benefit of reforming the setup would be P156 billion, he estimates.
2. HB 4688 provides that 25 percent of the compensating revenues from excise tax on petroleum of P165 billion be earmarked for subsidies to the lowest 50 percent income class, by way of fare vouchers and direct income transfers to be administered by the Department of Social Welfare and Development and to be designed by an inter-agency committee to include Department of Budget and Management, DSWD and the Department of Finance.
The direct income transfers will make the entire tax package more progressive with the lowest 10 percent seeing their incomes rise by 12 percent. It will be effective for three years.
3. The annual inflation adjustments on excise tax on petroleum will not be implemented if the Dubai crude exceeds $85/barrel in the prior year.
4. HB 4688 is also the first step in making tax rates on income in the Philippines competitive to the region—an inevitable structural adjustments to the AEC or Asean Economic Community.
5. This will be the centerpiece program that seeks to reduce poverty to single digit and grow the economy by 9 percent and transform the Philippines into an Asian economic powerhouse, an OECD by 2028 with $1.2 trillion in GDP (value of economic output per year).
Joey calls his tax reform bill the TRAIN of the Duterte Express. He committed to file it during the Philippine Development Forum in Davao last November with the participation of national government agencies CSOs, ODA partners, and LGUs.
Joey also has what he calls TARA or Tax Administration Reforms Act. It is another bill which he intends to file February next year.
“Tax administration” measures that are necessary in order to achieve genuine tax reform that aims to (i) improve the effectiveness of the tax administration especially in detecting and prosecuting non-compliance, and (ii) improving the tax paying environment, that especially focuses in giving compliant taxpayer the assurance of protection against abuse.
There are two basic goals: Improve the tax environment and make tax administration more effective.
Measures that will improve the tax environment are the institution of a genuine taxpayer bill of rights that serves to “protect” tax-paying, law-abiding citizens from dysfunctional practices and their practitioners; implementation of an estimated payments system for individual business taxpayers in order to minimize fluctuations in revenue collections while lowering the cost of compliance. This is already provided for in Sec. 74 of the NIRC but lacks implementing rules for defining a “safe harbor” and imposition of penalties for falling below this threshold.
There will also be provision of an effective and transparent tax appeals mechanism: independent taxpayers appeals mechanism, independent of the BIR.
Measures that will improve the tax environment will be to make filing of VAT and percentage tax returns quarterly as provided for by law. Monthly VAT filing is inconsistent with the NIRC, and imposes undue burden especially on smaller taxpayers. Removing monthly filing for both will lessen the number of tax returns by half, lowering compliance costs and making the volume of useful information more manageable.
Electronic filing and payment options will also be made available to all taxpayers and for all tax types. This is a better solution than using sales data to compute tax due. This will entail essentially a shift from the use of eFPS (Java-based) to the eBIR forms which has a more advanced design.
There will be a presidential directive to BIR to streamline refund system and pay VAT refund to exporters. This is to enhance confidence in the overall tax system and tax administration. If COA imposed mandatory audit, then TARA will clarify through legislation the limits.
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