Tax Reform and Inclusion Act to Generate P174.2 B in 1st Year, Says DOF Exec

Manila Bulletin, November 23, 2016 | Go to article overview

Tax Reform and Inclusion Act to Generate P174.2 B in 1st Year, Says DOF Exec


The Department of Finance (DOF) expects to raise from its proposed Tax Reform and Inclusion Act a net gain of P174.2 billion, of which a substantial portion would be spent on targeted transfer programs that will benefit the country's most vulnerable sectors--if and when Congress passes this DOF initiative in its original form.

The first of a series of tax reform packages submitted by the DOF to the Congress last September seeks to lower personal income tax (PIT) rates while expanding the base for the value-added tax (VAT) to plug massive leakages, adjust the excise tax on petroleum products and index these to inflation, and restructure the excise tax on automobiles via a progressive ad valorem system.

Finance Undersecretary Karl Kendrick Chua told a tax forum on Tuesday that the proposed tax reform and inclusion law, which the DOF submitted to the Congress last September, would result in revenue losses of P127.4 billion in 2018, the first year of its proposed implementation.

But such foregone revenues would be offset by gains totaling P301.6 billion from the additional revenues from the proposed broadening of the Value Added Tax (VAT) and adjusting the excise tax on fuel and automobiles, for a net gain of P174.2 billion.

In its original form, Chua said that Package One of the tax reform program is projected to raise an additional P111.2 billion from the removal of certain VAT exemptions, except for basic essentials, another P45 billion from automobile taxes, and P145.4 billion more from the fuel tax adjustment.

Speaking at a tax forum sponsored by the Stratbase ADR Institute, Inc. (ADRi) at the Ortigas Business Center in Pasig City, Chua said up to 40 percent of the incremental revenues collected from the first DOF-proposed tax reform package "will be used for targeted transfers to low-income and vulnerable sectors."

"We recognize that the tax reform will affect a number of vulnerable people. We are very much committed to protecting the poor, vulnerable, and low income sectors. The poorer the household is, the more social protection subsidies it will get especially, during the first year of the Tax Reform Package One implementation," Chua said at the Ortigas forum.

These targeted transfers, Chua said, include time-bound unconditional cash transfers for the bottom 50 percent of the population; pantawid pasada programs for public utility vehicles to cushion the impact of fuel excises on commuters; higher socialized pensions or higher conditional cash transfer amounts, plus rice subsidies for indigent senior citizens; and higher Philippine health insurance (PhilHealth) coverage and other benefits to help them defray the ever spiralling costs of healthcare for persons with disabilities.

To benefit most ordinary consumers, the DOF plans to increase the VAT threshold for goods and services from P1.9 million to P3 million for micro and small enterprises, effectively exempting them from the VAT.

This means that sari-sari stores and small groceries, where most Filipinos buy their every day essentials, will be exempted from the VAT and will only pay the percentage tax, he said.

Chua made it clear that in expanding the VAT base, exemptions would be retained for raw food, education, health care and other key essentials, but would lifted for other items such as travel, restaurants and amusement so that the tax savings from this effort would be used to fund the targeted transfer programs for the poor.

He also stressed that senior citizens would continue enjoying their 20 percent discount, regardless of their income status.

"The rich will not need exemptions and subsidies anymore as they are already well-off compared to the rest of the population. To achieve a more equitable society, we are going to spend more equitably even in terms of highly targeted transfer programs for vulnerable sectors," Chua said.

"As a general principle, the money we generate from the rich, who do not need exemptions and subsidies, will be transferred back to the poor and used to fund more and better services," Chua said. …

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