Duterte vetoes parts of tax reform, budget
President Rodrigo Duterte has vetoed six line items of the tax reform law and so-called “rider” provisions in the P3.767-trillion national budget for 2018.
Copies of Republic Act (RA) 10963, or the Tax Reform Acceleration and Inclusion (Train) Act, and RA 10964, or the General Appropriations Act for Fiscal Year 2018, were transmitted to both houses of Congress on December 19 along with the President’s direct veto of some items.
The tax reform law, which amends parts of the National Internal Revenue Code of 1997, brought down the personal income tax rates but increased the excise taxes imposed on petroleum, automobile, tobacco, mining and coal.
Provisions that were vetoed are the following:
- Reduced income tax rate of employees of the Regional Headquarters, Regional Operating Headquarters, Offshore Banking Units, and Petroleum Service Contractors and Subcontractors under Section 6 (F).
Malacañang said this provision effectively maintains the special tax rate of 15 percent of gross income for employees of these firms. In line with the Equal Protection Clause of the 1987 Constitution, the employees of these firms should follow the regular tax rates applicable to other individual taxpayers.
- Zero-rating of sales of goods and services to enterprises within separate customs territories (under Section 31) and tourism enterprise zones (under Section 33).
The Palace said this provision runs counter to the principle of limiting the value-added tax (VAT) zero-rating to direct exporters. This also grants a new incentive to suppliers of registered tourism enterprises, which may avail of incentives under the Tourism Infrastructure and Enterprise Zone Authority (Tieza) law.
- Exemption from percentage tax of gross sales/receipts not exceeding P500,000 under line 12, Section 38.
This provision is seen to lead to abuse and leakages, Malacañang said. The taxpayers under this provision are already exempted from VAT.
- Exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of petrochemical products, or in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle power plants.
This provision is also seen to lead to abuse by taxpayers and massive revenue erosion.
- Earmarking of incremental tobacco taxes under lines 20 to 29 of Section 82.
This provision, which effectively amends the Sin Tax Law, will effectively diminish the share of the health sector in the proposed allocation.
As for the 2018 budget, the President vetoed items that “do not relate to some particular appropriation,” as follows:
- Grant of monitoring expenses for Board members of the Movie and Television Review and Classification Board (MTRCB), considering they are entitled to honoraria or per diem.
Monitoring and evaluation expenses deemed necessary may be allowed, but will be subject to budgeting, accounting and auditing laws.
- Prohibiting the imposition and collection of fees related to the retention or reacquisition of Philippine citizenship.
- Authorizing the Department of Education to use appropriations for its Maintenance and Other Operating Expenses for its capital outlay requirements.
- Use of income provided in OEOs - Energy Regulatory Commission to augment the latter’s operational requirements.
The Palace said Congress will have to approve amendments to the laws and rules affected by the President’s veto.
Both measures were signed by the President into law on Dec. 19, or six days before Christmas.