By Camille A. Aguinaldo
PRESIDENT RODRIGO R. DUTERTE may have pressed Congress last Monday to approve his administration’s remaining tax reforms “in succession, for there is no chance that we can deliver our promises without an equitable tax system.”
There is just one major problem: there are no takers in the Senate.
“This matter is urgent. Do not be part of the problem by ignoring it. I hope to sign Package 2 before the year ends,” Mr. Duterte had said in his third State of the Nation Address (SONA), referring to the second package of tax reforms.
Adding that he supported efforts of leaders in the House of Representatives “to shepherd the bill,” Mr. Duterte said: “I hope the Senate will follow suit, maybe tomorrow, sir?”
Asked for updates on the bill, however, Senate Majority Leader Juan Miguel F. Zubiri told reporters on Tuesday evening: “Wala talagang takers sa amin na mag-sponsor ng (There are no takers among us to sponsor) TRAIN 2,” referring to the second package of the Tax Reform for Acceleration and Inclusion program that aims to overhaul the entire tax system to shift the burden more on those who can afford it and increase revenue collections.
The first package — Republic Act No. 10963 which took effect last Jan. 1 — slashed personal income tax rates but increased or added levies on a host of items and removed several value added tax exemptions.
The second package seeks to cut corporate income tax rates gradually to as low as 20% from 30% currently in order to put them at par with most of Southeast Asia, and remove tax incentives deemed redundant which deprived the government of about P300 billion in foregone revenues in 2015, according to Finance department estimates.
“… [W]e’ll have to wait for the House (of Representatives) to approve it and do the normal course of action which is basically remit it here to the Senate for us to discuss,” Mr. Zubiri added.
“Pero wala sa amin gustong mag-sponsor niyan (But none of us wants to sponsor that).”
The Executive plans to submit the remaining two to three other packages to Congress by the end of this month in hopes of securing their approval within the year, since it is expected that lawmaking — especially involving something as unpopular as taxes — will take a back seat to election campaigning as the May 2019 mid-term polls approach.
Mr. Zubiri reiterated his statement on Wednesday, saying that the tax measure has “very little support” in the Senate.
“What I had said was it has very little support from my colleagues and, as a matter of fact, no senator wants to sponsor the measure at this time,” he said, even as he acknowledged that “[d]efinitely, once the House of Representatives approves the measure and it’s automatically transmitted to us, the Senate would have to conduct public hearings.”
The development is reminiscent difficulties the first tax package had encountered in the House that prompted Mr. Duterte to meet with Senate leaders in March last year in a bid to ensure smooth sailing in that chamber. In his second SONA in July last year, however, he hinted of difficulties in the Senate as well.
Senate President Vicente C. Sotto III told reporters separately on Wednesday that the Senate has its own version of bills on the rationalization of tax incentives.
While tax measures are supposed to emanate from the House under the law, it has sometimes been practice in the interest of saving time for the Senate to deliberate its own measures and just harmonize them with what the lower chamber approves.
“The mentality of most of the members of Senate is to look at the possibility of how we will be able to help in trying to control inflation and the rising prices of commodities,” Mr. Sotto said.
“That is our thrust. So, if ever these bills are presented whether its TRAIN 2 or not, if it’s going to do that, we will take it up. If not, then we will follow the Senate version which is addressed towards better tax incentives.”
Senator Juan Edgardo M. Angara, chairman of the Senate Ways and Means committee, said that bills have been filed separately in the Senate seeking to cut corporate tax rates and streamline fiscal incentives.
“There are separate bills on rationalizing fiscal incentives. Two I believe and some bills on lowering corporate income taxes, around five to six. These bills form part of the second package,” he said in a text message to BusinessWorld.
Asked about the chances of the second package being passed by December, Mr. Zubiri said the Senate would have to study first the effects of TRAIN 1 on overall consumer price increases, which economic managers have argued has been minimal, accounting for 0.4 of a percentage point of last semester’s 4.3% headline inflation that compares to the central bank’s 2-4% target range for the entire 2018 and its downgraded 4.5% forecast full-year average.
“The President, of course, being the President, can fully sway and make the calls or his people can make the calls,” Mr. Zubiri said.
“But then I believe it is our responsibility as legislators or representatives of the people to let the President know what are the possible outcomes of the passage of this [reform].”
Senate President Pro Tempore Ralph G. Recto also said the proposed measure may be difficult to pass by December as Mr. Duterte requested.
“I support the objectives of tax reform 2 which are lowering corporate income taxes and rationalizing fiscal incentives, but with amendments,” Mr. Recto said in a text message to BusinessWorld.
“[It] may be difficult to pass by December.”
Sought for comment, Budget Secretary Benjamin E. Diokno reminded the Senate of its responsibility “to respond to the demands of the President”, adding that economic managers will raise the matter in the next Legislative-Executive Development Advisory Council (LEDAC) meeting.
“The President is very clear: he wants all the tax reform packages passed before the end of the year. We plan to convene the LEDAC as soon as possible, [so] we will thresh this out,” Mr. Diokno said in media briefing on Wednesday.
“We are optimistic that all tax packages will be passed before the end of the year; otherwise you will say goodbye to it,” he added.
“It’s either this year or forget it because 2019 is an election year. Tax is usually unpopular but let’s see.”
For his part, Finance Secretary Carlos G. Dominguez III said in a text message to reporters, “I will talk to the leadership of the Senate.”
Mr. Zubiri expressed “serious reservations” on TRAIN 2, especially on provisions regarding the fiscal incentives, and warned about the possible loss of jobs and investments if the incentives were removed since companies that enjoyed them could pack up and leave, while those looking to set up shop in the Philippines may just decide to look elsewhere.
“Although we welcome the lowering of corporate income taxes we need to look at the possible loss of jobs on the plan to remove incentives given to several industries including BPOs and export manufacturers which [has work forces that] number by the hundreds of thousands of people,” he said in his Wednesday statement.
“As the former chair of the Committee of Trade and Commerce, I have been briefed on the possible exodus of industries from our country if these incentives are lost. That’s why on a personal note I am not in favor of this measure but I will not stop the individual members of the Senate to discuss, amend, propose any bills relating to the issue.”
For his part, Mr. Recto said he supported the objectives of TRAIN 2 but noted that he will propose amendments “to ensure jobs are not lost but created.”
Sought for comment, Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said the government would have to reevaluate TRAIN 2 to have senators agree to sponsor the bill. “A lack of sponsor in the Senate for TRAIN 2 would be problematic because a legislator has to sponsor the bill first before it goes through the legislative process. The government would have to look for someone who can champion the law in the Senate and would have to probably re-evaluate the bill to have someone agree to sponsor the bill eventually,” he said in an e-mail to BusinessWorld.
For his part, Regina Capital Development Corp. Managing Director Luis A. Limlingan said in a text message to BusinessWorld: “The main hurdle is that each legislator has his or her own idea what is ideal for TRAIN 2… Well, perhaps then just as the case of Train 1, the President will need to meet the 24 senators so they can discuss these apprehensions.”
By Camille A. Aguinaldo