30 September 2016
Filipinos would enjoy lower income tax rates by June next year if the Department of Finance (DOF) could immediately get the legislators’ nod for its first tax policy reform package.
When the first package is in place, the DOF will push what it calls the “health tax” package. It will be the second of six tax policy packages and is aimed at increasing taxes slapped on sweetened beverages and the “sin” tax rates on cigarettes and alcoholic drinks.
In a presentation at a forum or ganized by the Senate Tax Study and Research Office Thursday, Finance Undersecretary Karl Kendrick T. Chua said the “optimistic” target for the first tax reform package would be to have it passed in Congress by January next year. Deliberations are slated for October to December this year.
If passed in January 2017, the personal income tax and consumption tax package would be implemented by June next year.
However, under a “pessimistic” timeline, in which congressional deliberations would be held from November this year until April next year, the bill would likely be passed by June 2017. This would make the tax package effective in January 2018.
A note on the presentation stated that “per the Senate majority leader, the bill will likely be passed in March 2017.”
From four main packages initially, the Duterte administration’s tax policy reform program would now have six packages. The proposed bill for the first package was already submitted to both houses of Congress last Monday.
The first of the six tax policy packages would adjust tax brackets to correct “income creeping”; reduce the maximum personal income tax rate to 25 percent over time, save for the “ultra rich” who would be slapped a higher 35 percent from 32 percent at present, and the shift to a simpler modified gross system.
The DOF intends to offset the revenue losses arising from the lowering of personal income taxes, estimated at P180.3 billion by 2019, by expanding the VAT base by limiting exemptions to raw food, education and health products and services; increasing the excise slapped on all oil products and indexing them to inflation, and jacking up the excise tax on automobiles. The said measures were seen to generate P377.3 billion in revenue.
The government stands to generate a net revenue gain of P197 billion from the first package by 2019.
The DOF was eyeing targeted programs similar to the existing conditional cash transfer program to shield the poor and vulnerable to higher consumption taxes, which would bring about higher prices of goods.
The first package would also include tax administration reform measures, such as a legislation to relax the bank secrecy laws for tax fraud cases and the inclusion of tax evasion as a predicate crime to money laundering.
The second package, which Chua said would likely be introduced in 2018 or after the Sin Tax Reform Law matures next year, would levy taxes on sweetened drinks and further increase the excise taxes on alcohol and tobacco products.
The “health tax” package, according to the DOF, would generate P120.4 billion in revenue for the government by 2019—P71.7 billion from alcohol and tobacco, and P48.7 billion from sweetened beverages.
Under Republic Act 10351, which the government is set to review before the end of the year, sin tax rates were supposed to rise by an increment of 4 percent yearly starting 2018, following the implementation of unitary rates next year.
But Chua said the 4-percent annual increment was deemed “too low.”
A DOF source had said that in the case of tobacco products, from the uniform excise tax of P30 per pack in 2017, the department was eyeing a higher P37 a pack by 2018, as recommended by the World Health Organization.
Finance Secretary Carlos G. Dominguez III had said the DOF was eyeing to impose a P10 per liter excise on sugar-sweetened beverages, whether in liquid or powdered form.
It would cover soft drinks, soda pop, energy drinks and sweetened tea and coffee.
An earlier draft of the DOF’s tax policy reform proposal also showed the plan to levy a P5 per kilo excise tax on sugary products, including domestic raw sugar, refined sugar and imported sugar and sugar substitutes. This is expected to result in fresh revenue of about P18.1 billion. This proposal is no longer included in the latest tax reform proposal.
The four other tax packages include those on corporate income tax and incentives; property tax; capital income tax; and other taxes (carbon tax, “fatty” food tax, lottery and casino tax, as well as mining tax), eyed for passage in the next two years.
By 2019, these six tax policy reform packages would result in losses of P219.6 billion to be offset by P589.5 billion in gains, bringing the net revenue impact of P375.2 billion.