Road­blocks to tax re­form


The coun­try’s eco­nomic devel­op­ment blue­print for the next five years was un­veiled this week dur­ing the Duterte­nomics Fo­rum an­chored on the gov­ern­ment’s 10-point so­cioe­co­nomic agenda. Co­p­re­sented by the Depart­ment of Fi­nance (DoF) and the Pres­i­den­tial Com­mu­ni­ca­tions Op­er­a­tions Of­fice, the event was held at Con­rad Ho­tel in the Mall of Asia Com­plex, Pasay City.

High­light­ing the fo­rum was the launch of “Build Build Build” — a joint project of the DoF, the Depart­ment of Trans­porta­tion ( DoTr), the Depart­ment of Bud­get and Man­age­ment (DBM), the Depart­ment of Pub­lic Works and High­ways (DPWH), the Na­tional Eco­nomic and Devel­op­ment Author­ity (NEDA), and the Bases Con­ver­sion and Devel­op­ment Author­ity (BCDA).

This am­bi­tious P3.6-tril­lion pro­gram of the Duterte ad­min­is­tra­tion is en­vi­sioned to trans­form the Philip­pines into an up­per- mid­dle- in­come econ­omy by 2022. It will also usher in a “golden age of in­fra­struc­ture” to be fi­nanced mainly by the com­pre­hen­sive tax re­form pro­gram (CTRP) bill now pend­ing in the House of Rep­re­sen­ta­tives.

A wide spec­trum of Filipino or­ga­ni­za­tions from both pub­lic and pri­vate sec­tors have en­dorsed the CTRP, as ex­em­pli­fied by the sup­port of the Bangko Sen­tral ng Pilip­inas (BSP) for tax re­form.

BSP Deputy Gov­er­nor Diwa C. Guini­gundo told a re­cent Se­nate hear­ing that bring­ing down per­sonal in­come tax rates would boost gross do­mes­tic prod­uct growth by nearly one per­cent­age point in the next two years. He said tax re­form will trans­late to higher con­sump­tion and have an im­me­di­ate im­pact on in­vest­ment as well.

It seems the op­po­si­tion to the CTRP em­anates mostly from the left­ists. Bayan Muna party-list Rep­re­sen­ta­tive Car­los I. Zarate slammed the pro­gram, say­ing it will hit the poor rather than the rich. The same sen­ti­ment was shared by the IBON Foun­da­tion, a Left-lean­ing non­govern­ment re­search group that be­lieves tax re­form will worsen in­equal­ity in the coun­try.

Within the Duterte Cabi­net, the only vo­cal op­po­nent of tax re­form is Depart­ment of So­cial Wel­fare and Devel­op­ment (DSWD) Sec­re­tary-des­ig­nate Judy M. Tagui­walo. An ac­tivist pro­fes­sor at the Univer­sity of the Philip­pines (UP) be­fore join­ing the gov­ern­ment, she was a po­lit­i­cal pris­oner for al­most a dozen years dur­ing mar­tial law and re­cently served as Chair­per­son of IBON Foun­da­tion’s board of trustees.

Her ob­jec­tions against tax re­form are pri­mar­ily be­cause of the CTRP bill’s rev­enue-en­hanc­ing pro­vi­sions im­pos­ing higher taxes on oil prod­ucts and ex­pand­ing the value-added tax ( VAT) that “are likely to be in­im­i­cal to the poor’s wel­fare.” She has also gone on record op­pos­ing the gov­ern­ment’s con­di­tional cash trans­fer (CCT) pro­gram that her depart­ment ad­min­is­ters un­der the Pantawid Pam­ilyang Pilipino Pro­gram, other­wise known as the 4Ps.

But UP School of Eco­nom­ics se­nior lec­turer Jan Carlo B. Punong­bayan has re­futed the DSWD chief’s claims. He said tax re­form will not be anti-poor de­spite some in­fla­tion­ary im­pacts of which he is con­fi­dent that the BSP would rein in, re­mark­ing that “on the whole, it will even put more money in our pock­ets.”

Mr. Punong­bayan cited the coun­try’s be­nign ex­pe­ri­ence in 2005 when VAT was first ex­panded from 10% to 12%, with in­fla­tion im­me­di­ately in­creas­ing by just 1.7 per­cent­age points and go­ing down by 1.0 per­cent­age point the fol­low­ing year. His con­tention is that the short-term in­fla­tion spike would be cush­ioned partly by in­creased fuel ex­cise taxes.

Re­gard­ing the CCT pro­gram, he es­ti­mated about P36 bil­lion in new rev­enues from tax re­form mea­sures would go to the poor­est 10 mil­lion house­holds in the Philip­pines via in­come trans­fers.

Not only will CCT ben­e­fi­cia­ries be get­ting larger trans­fers as pro­posed by the bill. Other im­pov­er­ished house­holds that are not cov­ered by the 4Ps would also re­ceive un­con­di­tional cash trans­fers, while a par­al­lel pro­gram called Pantawid Pasada is be­ing planned to off­set higher trans­port costs by giv­ing cash cards to op­er­a­tors of pub­lic util­ity ve­hi­cles.

Pro­po­nents of the cash trans­fer pro­gram con­tend that it is merely a means for peo­ple to rise above poverty, and not an end. They equate the 4Ps to meal al­lowances given to poor school­child­ren that would as­sist them in achiev­ing im­proved learn­ing out­comes.

BusinessWorld columnist Filomeno S. Sta Ana III, an econ­o­mist of the think tank Ac­tion for Eco­nomic Re­forms, pointed out the irony in the DSWD’s ob­jec­tion to tar­geted trans­fers due to ad­min­is­tra­tive prob­lems en­coun­tered. He lamented that “the DSWD can sab­o­tage the whole CTRP by ob­ject­ing to the un­con­di­tional cash trans­fer. For this, Sec­re­tary Tagui­walo must be made ac­count­able.”

J. AL­BERT GAM­BOA is chief fi­nan­cial of­fi­cer of Asian Cen­ter for Le­gal Ex­cel­lence and Se­nior Ad­vi­sor of KSearch Asia Con­sult­ing, Inc.

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