Gov’t pushes comprehensive tax reform program

CEBU - President Rodrigo Duterte’s economic managers have guaranteed highly targeted, direct and indirect subsidies plus other social protection initiatives to shield the poor and low-income households from the impact of the proposed adjustments in excise fuel taxes under the initial comprehensive tax reform program that the government had submitted to the Congress for its approval.

In a joint statement, Secretaries Carlos Dominguez, of the Department of Finance, Benjamin Diokno, of the Department of Budget and Management, and Ernesto Pernia, the Director General of the National Economic and Development Authority, said these highly targeted transfer programs would help cushion the impact of the proposed indexing to inflation of the excise taxes on oil products on the poorest 50% of the population.

Adjusting oil excise taxes on diesel, gasoline and other petroleum products is among the proposals under the first tax reform package submitted by the Duterte administration to Congress on September 26, which also includes the lowering of personal income tax rates, broadening the value added tax base, and restructuring the excise tax on automobiles, except for trucks, cargo vans, jeepneys, jeep substitutes, single chassis engines and special purpose vehicles.

“To mitigate the impact of higher oil prices on low income and vulnerable households, we will use highly targeted transfer programs to ensure that the poorest 50% of the population is fully protected from the increase in oil excises, while the next 30%, which covers the commuting class, will be protected through indirect subsidies to public utility vehicles. Only when tax reform and targeted transfers are pursued together can we ensure that the resulting policy reform will be truly inclusive and equitable,” the statement said.

It pointed out that iincreasing excise on oil products is highly progressive as the top 2 million households, which comprise 10% of the total number of households in the country, consume almost 60% of oil products, while the top 200,000 households or 1% of total, consume some 20% of oil products”.

According to Dominguez, the government’s planned reforms in tax policy and administration, aims to achieve a more efficient, equitable, and simpler tax system characterized by lower rates and broader base, that will, in turn, encourage investment, job creation, and poverty reduction.

“The priority infrastructure, education, and health investments funded through tax reform will enable the country to lift 10 million Filipinos out of poverty by 2022 and eradicate extreme poverty by 2040,” he said.

The near-term goal of the Duterte administration’s tax reform plan, Dominguez said, is to raise P600 billion, which is about 3% of the Gross Domestic Product by 2019 to help fund the 10-point socioeconomic agenda of the administration for sustained high and inclusive growth, which is anchored on accelerated spending on infrastructure, human capital and social protection for vulnerable sectors.

Of this amount, P400 billion (2% of GDP) will come from tax policy reforms and another P200 billion (1% GDP) from reforms in tax administration. Dominguez said reforming the tax system and protecting the country’s vulnerable sectors should go hand-in-hand in realizing Duterte’s electoral mandate of making the benefits of economic growth felt by all Filipinos.

The adjustments in oil excise taxes and later indexing these to inflation, the expansion of the VAT base and the restructuring of the excise tax on automobiles are measures that would offset the revenue losses arising from the reduction of personal income tax rates.

Dominguez pointed out that adjusting oil excise taxes would remove the subsidy on fuel that is actually enjoyed mostly by the rich, and transfer this instead in the form of highly targeted assistance to lowincome households and other vulnerable sectors.

“The incremental revenues will be used to fund the massive infrastructure needs of the country and the programs to develop our human capital and provide social protection for the poor,” he said.

Dominguez said the general rule under the Duterte administration is that the rich would have to pay more while poor and low-income groups would pay less or none at all.

He said the tax plan would lay the groundwork for raising an extra P1 trillion yearly for sustained higher spending that will meet the Duterte administration’s vision of transforming the Philippines into a high middle-income country by 2040.