DoF lines up remaining tax reforms

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The Finance department aims to submit the second to fourth tax reform packages -- designed to make the system fairer besides yielding more revenues -- to Congress within the year.

By Elijah Joseph C. Tubayan

THE EXECUTIVE BRANCH is readying the remaining three packages of its tax reform program for submission to Congress within the year, the head of the Department of Finance (DoF) said yesterday.

“We will pass the second package some time this month. Package two that will lower corporate income taxes and modernize fiscal incentives. We will also pass package four on passive income and financial taxes by the second half of 2018,” Finance Secretary Carlos G. Dominguez III told reporters in a briefing in Malacañan Palace.

“Package three will be also submitted within the year.”

In its original planned configuration, the third package will rationalize the capital gains tax on real estate as well as other property-related taxes and fees by simplifying them and increasing valuation. This tranche was initially meant to yield P43.5 billion more and will be designed to enable the national government to devolve more functions.

Mr. Dominguez said the department “will still see” if a fifth package — consisting of increased tax rates on luxury items like jewelry and yachts, as well as on lottery and gambling, among others — will be needed as some of this tranche’s original features, such as higher tobacco, coal, and mineral taxes, had been included by Congress in the first package that was enacted on Dec. 19 as Republic Act 10963.

“The other tax packages are not so much about increasing taxes — it is just making it fair,” he explained.

The entire four- to five-part tax reform program is supposed to yield about P2 trillion in additional revenues that will help finance the government’s planned P8.44-trillion infrastructure development campaign until the current administration ends its six-year term in 2022.

The Finance chief said that the second package would cut corporate income tax rates to 25% from 30% currently. It will be “revenue-neutral,” with initial DoF estimates showing some P34 billion estimated to be foregone as a result of lower corporate income tax rates to be covered by a matching amount from the withdrawal of some incentives granted by investment promotion agencies.

“We are the only country in ASEAN that has 14 agencies that give tax incentives,” Mr. Dominguez said of the Association of Southeast Asian Nations, adding that the country foregoes at least P301 billion annually from fiscal incentives given to companies that would have come in just the same without such help.

“In other countries, there is only one or two. So, we have whole menu of tax incentives and they are not coordinated… so, we’d like to simplify it.”

The fourth package, Mr. Dominguez said, will among others seek to make the tax on passive income from investment instruments more inclusive. “The government takes 20% of the interest… if it is in pesos less than five years. But in pesos more than five years, no tax,” Mr. Dominguez noted. “We think that’s anti-poor. Who can afford to put money more than five years? Right now the current tax system favors the wealthy.”

Asked if he sees the administration rushing the rest of the packages with an eye on next year’s mid-term legislative elections, political analyst Ramon C. Casiple said much will depend on President Rodrigo R. Duterte’s political will to push the measures, in the same way that he intervened when he was told that the first tax reform tranche had faced rough sailing in the House of Representatives in the middle of last year.

“The key question is not elections by itself. The election will become a factor if his popular support lessens,” Mr. Casiple, executive director of the Institute for Political and Electoral Reform, said in a telephone interview.

Mr. Duterte has been acing public opinion surveys, with the latest by Pulse Asia — conducted on Dec. 10-15 — showing him outdoing the four other top national officials in the line of succession with an 80% approval rating, steady from September, and an 82% trust score from 80% previously.

“…[H]e’s still highly popular, I don’t think it will be the factor. I think legislators are all over in approving the next packages of TRAIN,” Mr. Casiple said of the Tax Reform for Acceleration and Inclusion Act, as RA 10963 is better known.

“That’s why political will is very important. I think the President will stand by TRAIN. I think the whole package has been approved by the president.”

Emmanuel J. Lopez, associate professor and chairman of the University of Santo Tomas Department of Economics, shared this view, saying via e-mail that “it is not exactly a factor for the mid-year election in 2019 because it is part of the campaign promise of Duterte.”

Sought for comment, Senator Juan Edgardo “Sonny” M. Angara, chairman of the Senate Ways and Means committee, said in a mobile phone message: “The Committee on Ways and Means can tackle these new packages after completing work on the proposed comprehensive tax amnesty bill.”

“Simultaneous hearings with the [H]ouse can be done,” Mr. Angara said, even as he cautioned that “[a] factor which may affect timetables is any impeachment trial which might ensue given that there are some impeachment complaints being heard in the House of Representatives.”

RA 10963 cut personal income tax rates and makes up for the foregone revenues by removing some value-added tax breaks; raising fuel, automobile, mineral and coal excise tax rates, as well as adding levies on sugar-sweetened drinks and cosmetic surgery.

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