DoF: Tax reforms face political resistance
THE DEPARTMENT of Finance (DoF) expects rough sailing in Congress for remaining tax reforms as lawmakers increasingly focus on preparations for the May 2019 mid-term elections.
“… [T]here is now more political resistance to succeeding tax reform packages. Part of the reason for this resistance is the proximity of elections. Tax policy, as we know, is never the best way to be reelected,” Finance Secretary Carlos G. Dominguez III said in a speech at a ceremony on Wednesday marking the tax bureau’s 114th anniversary.
Mr. Dominguez told reporters on Tuesday that the department met its deadline to submit all remaining tax reform proposals to Congress by the end of July.
The first package — Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act — slashed personal income tax rates while increasing or adding taxes on several items. While it was designed to help make the country’s tax system more equitable while increasing collections, it is now widely blamed for this year’s overall spike in prices of widely used goods — a development a few economic managers have acknowledged even as they assured recently intensified price pressures should be temporary.
The second package — approved in principle on Thursday by the House of Representatives Ways and Means committee, while a separate version was filed the same day in the Senate ( read S1/ 2) — seeks in general to slash corporate income tax rates gradually to 20- 25% from 30% currently in order to put the level at par with those of the Philippines’ main Southeast Asian rivals for investors, as well as scrap redundant fiscal incenaftermath tives which the DoF estimates cost the government some P301 billion in 2015 and P178.56 billion in 2016 in terms of potential revenues.
There are up to three other packages now awaiting formal filing in Congress which President Rodrigo R. Duterte, in his third State of the Nation Address last month, said he wanted approved by Congress by yearend in order to beat the 2019 election fever.
The other packages include proposals to further increase tobacco and alcohol excise tax rates, hike the government’s take in mining revenues, introduce a uniform valuation scheme for real property taxes for both the national and local governments, and streamline taxes on passive income.
Senate Majority Leader Juan Miguel F. Zubiri last week had said none of the senators was willing to sponsor the second package due to lingering concerns about tax reforms’ inflation impact.
Both Fitch Ratings and Moody’s Investors Service last month warned that any “reversal of reforms” raised the risk of a downgrade in the Philippines sovereign rating, which both debt watchers at that time affirmed at a notch above minimum investment grade.
Sought for comment, Filomeno S. Sta. Ana III, policy coordinator of Action for Economic Reforms, said “[t]he key is to fashion out a reasonable consensus, which is now emerging, which will be acceptable to the investors but at the same time firmly consistent with the essential goals of the reforms.”
Bienvenido S. Oplas, Jr., president of Minimal Government Thinkers, a member-institute of Economic Freedom Network Asia said economic managers may have miscalculated the price impact of the first tax reform package, noting “they projected that the inflationary pressure… would be only 0.4% when actual number is more than one percent.”
Inflation hit a multi-year-high 5.2% in June, averaging 4.3% last semester against the central bank’s 2-4% full-year target and 4.5% forecast average for 2018. June saw the sixth straight month of rising inflation and the fourth consecutive month inflation breached the government’s target.
However, the Finance chief said that inflation has been “politicized.”
“Tax reform was blamed for causing inflation. What should otherwise be understood as an economic phenomenon normally accompanying high growth has been skewed to pin blame on our reformist policies,” he said.
Mr. Dominguez said that the spike in inflation was due to factors beyond the government’s control, including a surge in world oil prices, the depreciation of the peso due to the global monetary policy tightening, and a seasonal surge in the prices of fish.
“Let me just be clear, though. There are products whose prices have contributed to inflation, and that is, number one, cigarettes, and the other one is sugary drinks. But we want those products to be more expensive so that the young people are not able to buy cigarettes so easily and fall into the habit of smoking. And also, the sugary drinks tax is to discourage people from drinking too much products that will eventually cause health issues,” he added.
“We are confident that with the monetary tools at our disposal, inflation’s surge can be tamed.”