TAX REFORM BILL: A BIG ADVANCE
Some of the harsh critics of Duterte also opposed the reform bill, failing to realize that the reform benefits everyone.
The House of Representatives has finally passed on third reading the first package of the comprehensive tax reform program called TRAIN (which stands for Tax Reform for Acceleration and Inclusion).
Those earnestly advocating TRAIN thought that the bill would be badly compromised. Vested interests inside and outside the House opposed it. Particularly hard to pass were: 1) the expansion of the valueadded tax ( VAT) base by limiting the exemptions to the essential goods and services and 2) the increase in the excise tax rates of petroleum products, which were artificially low ( even a zero tax rate for diesel) and unadjusted for inflation since 1997.
It was reported, for instance, that the House leadership wanted to further water down the key features of the reform like the excise tax on petroleum products and the broader VAT coverage. Even within the Executive, cracks emerged. The Department of Social Work resisted the petroleum excise tax and the VAT expansion. It was likewise against the cash or revenue transfer, which is necessary for the welfare gain of the poor and near poor, and for the mitigation of the moderate price impact resulting from the consumption taxes.
Further, the perception was that President Rodrigo Duterte was not focused on the tax reform, leaving the responsibility of having the bill passed to the economic managers, especially to Finance Secretary Carlos Dominguez.
Some of the harsh critics of Duterte also opposed the reform bill, failing to realize that the reform benefits everyone.
Let it be affirmed that the bill is pro-poor, pro-people. The rewards include 1) income tax relief for the upper middle class, the professionals, and the working class and net welfare gain the poor and near poor through cash transfer; 2) expansion of essential social economic and social services like infrastructure, education and health; and 3) robust high growth and an improved macroeconomic environment, enabling job creation and poverty reduction.
The tiny, richest .01% of the population cannot complain, notwithstanding the higher income tax and the higher excise taxes on gasoline and autos that they have to pay. The outcome of the tax reform will mean better business and investment opportunities for them (and everyone) resulting from infrastructure upgrade, lower interest rates that follow the credit upgrade, and overall economic stability that the reform brings.
At the final reckoning, the reformers prevailed. Here are the main features of the reform package that the House approved:
Those earning P250,000 and below (this including the minimum wage workers) are exempted from paying the income tax.
The 13th month pay and other bonuses that do not exceed P100,000 are exempted from the income tax.
The taxable income levels will be adjusted to inflation every three years. This avoids the “income creep” that leads to higher tax rates for those belonging to lower income brackets.
The estate tax and the donor’s tax are reduced from a prohibitively high of 20% of net estate and 15% of donations to a reasonable six percent for both items.