ECONOMIC MANAGERS said they could ask the President to veto the Tax Reform for Acceleration and Inclusion bill if it is watered down further by legislators.

“That is an option,” Finance Secretary Carlos G. Dominguez III told reporters in his office last week when asked about the government’s options if the bill’s revenue-raising provisions fall short.

They also advised President Rodrigo R. Duterte not to sign Republic Act 10931, or the Universal Access to Quality Tertiary Education Act, claiming it would be unaffordable and is not adequately targeted to benefit the poor.

“It’s going to be very difficult. You have to remember that we have additional expenses. We have the (free) education (law),” Mr. Dominguez said.

He said that implementing the proposal would cost the government P50 billion in the first year, some P60 billion in the second year, and about P80 billion in the succeeding year.

According to Mr. Dominguez, a diluted tax reform program along with rising costs will push the fiscal deficit past levels deemed prudent for a government’s fiscal position.

“Where are we going to get the money? It’s not really the net revenue that we are looking at, it is the deficit. Anything above 3% (of gross domestic product) is not responsible,” said the Finance chief.

He also said that a weaker revenue version of the bill would only be able to fund about half of the infrastructure projects planned under the “Build Build Build” program.

Mr. Duterte urged Congress in his second State of the Nation Address to pass the Finance department-backed tax reform bill.

Analysts from Moody’s Investors Service and Credit Suisse have said that the tax bill could lead to a credit rating upgrade as it improves the state’s weak revenue effort, which has been one of their top concerns.

Asked whether a downgraded tax reform proposal would be credit-negative, Mr. Dominguez said: “We [will] certainly risk it.”

In its current configuration, the program is expected to yield P133.8 billion in the first year of implementation. The Department of Finance however supports a version backed by the Senate President Aquilino L. Pimentel III that would generate a higher P157 billion tax take.

The tax program features a reduction of personal income tax rates, a rationalization of estate and donor taxes, while withdrawing some value-added tax exemptions, raising excise taxes on petroleum and automobiles, and introducing a sugar-sweetened beverage tax.

The program would fund the government’s ambitious P8.4 trillion infrastructure spending over the medium term, leading to projected annual economic growth of 7-8% starting next year. — Elijah Joseph C. Tubayan

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