Tax reform or purgatory for the Philippine economy

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I - nance Secretary Carlos Dominguez declared that the Philippines is enjoying a “Cinderella moment” today. The Congress should seize the moment to pass the proposed comprehensive tax re department has laid out as the core of

the administration’s economic program. If the country is Cinderella, what is the

In two major statements in four days—one at the Manila Times business forum last Friday (February 10), and the other at a hearing of the House ways and means committee on Monday (February13)— Secretary Dominguez all but declared that the CTRP is the magical slipper that will transform the country into a 21stcentury economy.

Better than drug killings, federalism and an independent foreign policy, tax reform will unleash national energies for economic expansion and transformation.

Building a 21st century economy

important Cabinet post is Secretary of equals. Dominguez told the Times forum.

The government will spend big not only on infrastructure and social skills training in order to prime the country’s youth for the challenges of a globally competitive job environment.

Dominguez stressed the urgent need for government to improve the job-related skills of young Filipinos because our ever-expanding labor force is one comparative advantage that can enable the Philippines to neighbors and better compete with them for foreign investments.

- ing a demographic ‘sweet spot’ where millions of young Filipinos will be joining the workforce. We need to train them in the high skills required for a 21st century economy.” - ing high growth and making it truly must spearhead efforts to make growth investment-led rather than consumption-led.

The administration’s ambitious spending on three key areas–infraand social protection–would enable it to realize its inclusive-growth agenda and reduce the rate of poverty incidence from the current 22 percent to - ment must be armed with ample revenues to implement its groundbreaking public investments program. department is critical.”

Dominguez disclosed that even if the BIR and the customs bureau ac these would still not be enough to fund the government’s public invest - over the medium term.

The infrastructure gap raises costs all around and prevents our economy from being fully competitive. This compounds the poor investment rate.

Taking the more challenging path

In his statement before the House Dominguez was more emphatic and comprehensive in selling the tax reform program.

are at a critical juncture today. The easier path is to continue with existing policies that might bring high growth that will also sadly maintain high poverty and economic exclusion. The more challenging path is to reform the growth happens with equity.”

this not only because it was a campaign economic sense.”

The succeeding package under the CTRP aims to lower corporate into our economy if our tax rates are substantially higher than those of neighboring economies. We seek to bring income taxes from the top rate of 32 percent to a more reasonable 25

The reductions in income taxes will be accompanied by a corresponding set of revenue-compensating mea taxes on fuel and automobiles and enjoyed by seniors and persons with disabilities.

He warned legislators that unless - those with no skills and no opportuni

Tax reform will enable the government to raise an additional P718 and P1.73 trillion for urban and rural infrastructure.

Dominguez summed up his mes be sustained by at least 7 percent. Without a dramatic increase in in - purgatory for an economy with great potential.”

The argument for lower income tax relief from high income tax rates. We cannot attract the investments we need until we align our corporate tax rates with the regional average.

reform will broaden the tax base and introduce new revenue measures.

The entire tax reform package must be passed to ensure the needed gains in revenues to fund the ambitious public investments program of the administration

Dominguez painted a dire scenario if Congress chooses to pass only the popular reduction of the personal - ing revenue-enhancing measures.

- tary is echoed by foreign banks and the credit rating agencies.

Net addition to economic growth

Deutsche Bank projects that the tax reform program will add another 0.2 ppt to the 7 percent to 8 percent outlook in 2018.

- velopment to a low-income country with one of the highest income tax

The Philippine government will face market scrutiny over its ability to shore up revenues this year even

- ment would prompt revisions of the country’s credit ratings.

- nomic performance in 2017 will de the containment of political risks in the country.

Fitting the nation’s foot in the glass slipper is not a shoo-in. Cinderella will have to undergo the rigor of reform.