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By Ian Nicolas P. Cigaral

Palace backs original tax reform version

Posted on June 15, 2017

PRESIDENT Rodrigo R. Duterte “stands by” the original version of the first of up to five tax reform packages, which now moves to the Senate for action after the House of Representatives approved a watered-down version of the Department of Finance (DoF)-backed bill.

President Rodrigo R. Duterte on May 29 certified HB 5636 as urgent, making it possible for both chambers of Congress to approve the measure on second and third reading consecutively without having to wait for at least three days in between as otherwise required by rules. AFP
House Bill (HB) No. 5636 -- a diluted version of the Executive’s tax reform plan -- was passed on final reading just before Congress adjourned the first regular session after getting a nudge from Mr. Duterte.

“I’m sure the president will support [the original version of the tax reform bill]... I mean he stands by that,” Presidential Spokesperson Ernesto C. Abella said in an interview in Malacañang on Wednesday.

Asked if Malacañang would help the Finance department in convincing the Senate to hew the first tax reform package closer to the original proposal that was submitted to Congress in September last year, Mr. Abella replied: “I don’t know kung tulong (if it can be considered as help) but basically he (Mr. Duterte) still stands for the same thing: the original [version].”

The chief executive had met leaders of both chambers of Congress, and separately with members of the Senate majority bloc, in mid-March to emphasize the need to approve the measure after noting “resistance” and “rough sailing” then in the House.

Mr. Duterte subsequently certified the need for the measure’s “immediate enactment” in both legislative chambers three days before Congress adjourned, doing away with the requirement to approve the bill on second and on final readings on separate days.

But the House ended up adding even more revenue-eroding provisions in the final version.

The bill now heads for the Senate for fresh deliberations. Under the Constitution, all tax measures must originate from the House of Representatives.

Sought for comment, Senator Juan Edgardo M. Angara, chairman of the Senate ways and means committee, said in a mobile phone message that Senate will “take all the versions into consideration.”

“We are having detailed consultations and public hearings now. The past two weeks we had petroleum products and cars. Tomorrow we will have the sweetened beverages tax under discussion.”

The Finance department said it will persuade Senate to pass the department’s version of the bill after the House’s version cut projected net revenues from the first package by some P23.4 billion -- nearly 15% -- to P133.8 billion in the first year of implementation from the P157.2 billion estimated originally by the department.

From P133.8 billion in the first year, HB 5636 will yield P233.6 billion in 2019, P272.9 billion in 2020, P253 billion in 2021 and P269.9 billion in 2022.

HB 5636 will yield P1.163-trillion net revenues from 2018 to 2022, according to the department’s latest estimates, compared to P1.266 trillion under the original proposal submitted to Congress in September last year.

In comparison, the Senate version under Senate Bill No. 1408 will actually yield a bigger P1.344 trillion in the same five years: P169.1 billion in 2018, P262.5 billion in 2019, P305.8 billion in 2020, P290.1 billion in 2021 and P316.6 billion in 2022.

Under the proposed law, personal income tax rates will be adjusted to shift some burden off lower income segments towards the “ultra-rich,” with those earning P250,000 a year to be exempt from paying taxes.

On the other hand, those earning at least P5 million annually will pay P1.45 million plus 35% of the amount beyond that threshold.

The first tax reform package also removes some value-added tax (VAT) exemptions, increases excise taxes on oil products and automobiles, introduces a sugar excise tax, harmonizes estate and donor’s tax rates, and improves tax administration.

The Finance department’s concern over the first package’s dilution notwithstanding, both Moody’s Investors Service and Fitch Ratings have said approval of the first package addressed the Philippines’ need for a stronger revenue stream -- a long-standing weakness in its credit profile -- and proved the Duterte administration had what it took to see crucial reforms through Congress.