By Elijah J. C. Tubayan Reporter
and Melissa Luz T. Lopez Senior Reporter
TIME IS RUNNING OUT on a second tax reform package to cut corporate income tax rates and streamline fiscal incentives under the current Congress, which is about to adjourn for its Dec. 15-Jan. 13 Christmas break.
While session will resume Jan. 14-Feb.8 and on May 20-June 7, the Finance department had hoped for year-end approval in the House of Representatives and the Senate of all remaining tax reforms — after Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN), was enacted about a year ago and took effect in January — since lawmakers are expected to be increasingly distracted by political campaign for the May 2019 mid-term elections.
The proposed second tax reform, under the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill bagged final House approval on Sept. 10 and is now with the Senate Ways and Means committee that has had just one public hearing so far. The Senate Web site shows there will be no hearings on this reform during the upcoming break.
“That’s too sad,” Finance Secretary Carlos G. Dominguez III told reporters on Monday at the Finance department headquarters when asked for a reaction.
“We will discuss again with them and see how we can push it… they still have to look at the martial law, they haven’t finished the budget,” he noted.
“Well, we have to try again next year, I guess.”
President Rodrigo R. Duterte said in his State of the Nation Address in July that he hoped to sign the remaining tax reforms before the year ends, noting: “It is near the elections.”
The Finance department submitted its proposals for the remaining reforms in late July.
WORLD BANK HOPES
For the World Bank, the Philippines should persevere with tax reform despite dimming chances for the passage of succeeding tax packages in Congress, citing the need to rake in more revenues.
“On revenue mobilization, the Philippines has passed one phase of far-reaching tax reform which is very encouraging. Our suggestion would be that the program for tax reform to continue. It’s one that is well worth considering going forward,” Sudhir Shetty, World Bank chief economist for East Asia and the Pacific, said in a livestreamed media briefing yesterday.
The multilateral lender said economies in East Asia and the Pacific should shift gears towards “outward-oriented” growth and sound economic governance, which is done by taking measures to improve economic competitiveness and boost domestic revenues at a time of easing global trade.
“Governments in developing East Asia will need not only to raise more revenue but also to spend that revenue more effectively,” the World Bank report read, noting that most economies are hampered by low tax collection, complex tax codes with many exemptions, weak tax administration, narrow tax bases and high cost of tax compliance.
The first tranche of the government’s comprehensive tax reform program kicked in on Jan. 1, from which the state intends to raise around P82.3 billion in additional revenues. TRAIN reduced personal income taxes but imposed additional taxes for fuel, cars, mineral and coal, sugary drinks and cosmetic surgery.
Revenue effort rose to 16.9% annually in the nine months to September, higher than the 15.9% rate recorded in the same period last year and the 16.1% target for the full year, according to the Department of Finance.
Together with up to four more tax packages expected to be passed into law, the proportion of revenues to gross domestic product is expected to rise to 17.5% by 2022, coming from this year’s 16.3%.
The World Bank economist said the government should not stop here, as the country needs more funding to support ambitious spending targets.
“By definition, this is not going to happen in one year, it will take some time. But the direction it is going is the right direction because it seeks to broaden the tax base and improve revenue modernization,” Mr. Shetty added.
Pending Senate approval is the second tax reform package that will gradually reduce the corporate income tax rate to 20% by 2029 from the current 30% by two percentage points every other year starting 2021. This will come with an overhaul for local tax incentives to replace various perks granted by investment promotion agencies. Fiscal incentives will be harmonized into a single set, limited to industries identified in a Strategic Investments Priority Plan and benefitting businesses will be subject to performance benchmarks.
Currently, income tax holidays can run as long as nine years, with a five percent tax on gross income earned in lieu of all other taxes that can be extended perpetually.
Changes also need to be installed to improve trade, Mr. Shetty added, largely to improve logistics and shipping within the Philippines.
Across the region, economies also need to consider opening up the services sector at a time of slowing global trade growth, especially as short-term trade tensions between China and the United States are “clearly weighing down” prospects for expansion this year.
External trade has been a drag to economic growth so far this year as exports remain in a slump while imports continue to grow at a double-digit pace.
NO MORE TIME
The Senate leadership, however, said that the TRABAHO bill cannot meet the timetable.
“Not possible. Time constraints,” Senate President Vicente C. Sotto III said in a mobile phone message.
Asked if the chamber will push at least this second tax reform before the 17th Congress ends, Mr. Sotto replied: “I leave it to the Ways and Means committee.”
Senate Ways and Means committee Chairman Juan Edgardo M. Angara, meanwhile, said: “We still haven’t finished the national budget that takes precedence over any and all bills still in committee.”
A proposed tax amnesty program, meanwhile, is closer to enactment, with a House leader saying that it can be ratified by both chambers this week and submitted to Mr. Duterte for signing into law before yearend.
“Bicam[eral conference committee] report will be signed today so we can ratify it before session adjourns,” House Ways and Means committee Chairperson Rep. Estrellita B. Suansing of Nueva Ecija’s 1st District said in a mobile phone message.
The bill would slap an amnesty charge equivalent to a portion of applicants’ outstanding unpaid taxes in exchange for immunity from civil, criminal and administrative penalties. The bill covers amnesty on unpaid estate taxes, general taxes and delinquencies prior to 2017, and is targeted to be implemented next year.
The other remaining planned tax reforms — higher excise taxes on mineral, alcohol and tobacco products, harmonization of property valuation, as well as streamlining of capital income and financial taxes — have also been approved by the House and are now up for Senate deliberation.