By Charmaine A. Tadalan, Genshen L. Epedido and Beatrice M. Laforga
Reporters

LEADERS of Congress are lukewarm to suggestions by the Finance department that a tax hike is needed in “a year or two” in order to cover the economic costs of the coronavirus crisis.

Finance Secretary Carlos G. Dominguez III first floated the idea on April 8, saying that the government may raise taxes in one to two years as it needs to pay off the debts incurred in the fight against the coronavirus disease 2019 (COVID-19).

“Certainly down the road. I think maybe in a year or two, that might be required, you know. All this money is really, has to be paid somehow. But we’re not going to do that immediately,” Mr. Dominguez told CNBC when asked if raising taxes is possible.

To fund its COVID-19 response, the government is negotiating $5.7 billion worth of loans from multilateral lenders including the World Bank, the Asian Development Bank and the Asian Infrastructure Investment Bank.

However, Senate President Vicente C. Sotto III is reluctant to consider additional tax measures amid the coronavirus pandemic, but noted it is “possible” that it may be taken up by the next administration.

“In one or two years, then let’s talk about it then. Hard to predict at this point,” he said in a phone message on Monday.

Senate President Pro Tempore Ralph G. Recto in a text message said it is “crazy to talk about increasing taxes,” adding the government should focus on an economic recovery plan instead.

For House Ways and Means Committee Chairman Albay Rep. Jose Maria Clemente S. Salceda, any new tax measures would be taken up by the next administration.

“We will do it for the next administration, even if deferred or gradual implementation. It’s all there, waiting in the Senate anyway,” he told BusinessWorld via Viber message.

Asked whether new taxes are needed, Mr. Salceda said there are pending measures that would not impact low-income households, such as taxes on Philippine Offshore Gaming Operators and an increase on the motor vehicles users charge.

Despite the government’s plans to incur more debt, Mr. Salceda said that the Philippines’ fiscal position or long-term growth outlook will not be compromised.

“We can negotiate very favorable terms, too, because of our attractive credit ratings,” Mr. Salceda said. “The interest rates are usually concessional. If we can get them at 2% interest, that would almost already be free money.”

“How quickly we were able to access credit from multilaterals, and how easy the terms are (just pay it, no other strings attached), shows us the fundamental strengths of the Philippine economy and fiscal position,” Mr. Salceda added.

ARE NEW TAXES NEEDED?
Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said fiscal reform measures would have to be rolled out to pay for the debts and offset the higher state spending this year.

“Once the COVID-19 is better controlled/contained and economies locally and overseas gradually recover and normalize, fiscal reform measures such as increasing structural tax revenue collections could be resumed to sustain the country’s fiscal gains over the long run,” Mr. Ricafort said in an e-mail.

While raising taxes is an option, Finance Assistant Secretary Maria Teresa S. Habitan said there are no concrete plans for another tax hike yet.

In the near term, Mr. Ricafort said “higher taxes may not be appropriate especially if more financial aid/relief measures from the government are still needed by the most vulnerable sectors.”

For Ateneo School of Government Dean Ronald U. Mendoza, policy makers should focus on recovery programs for sectors hardest hit by the pandemic such as health care, tourism, construction and retail, as well as displaced overseas Filipino workers.

“Introducing new taxes during a fragile recovery period is probably counter-productive. The next 1-2 years will be critical in terms of ensuring recovery-for-all vis-à-vis the COVID-19 health and economic shocks… What is more critical is to continue to provide support, rather than to implement a heavier tax burden on top of the burden of recovery itself,” Mr. Mendoza said in an e-mail on Sunday.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said raising taxes in one to two years will have to depend on the performance of the economy after all the fiscal and monetary policies were rolled out.

“Expanding government in a recovery state would not be ideal. Government would have to come up with more creative fiscal policies. If and when economic recovery comes quickly, I do not think that derailing the current tax reform would be needed,” Mr. Asuncion said via Viber.

Mr. Mendoza said the government could also consider dropping its plan to lower the corporate income tax if it wants to stabilize its revenues and instead, pursue governance reforms for the country’s two largest tax-collecting bodies — Bureaus of Internal Revenue and Customs — to plug revenue leakages.

However, DoF’s Ms. Habitan said they will still prioritize passing the remaining packages of the tax reform program, especially the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill.

“We’ll see how things develop, baka naman ’di (maybe not) actually raising taxes but continuing the tax reform. I think it’s even needed urgently especially ’yung CITIRA because it can focus on more COVID-related incentives and the way that it should be targeted, it should be really targeted,” Ms. Habitan said in a telephone interview on Friday.

While the CITIRA bill is revenue neutral or not expected to generate more revenues for the government, Ms. Habitan argued that a more targeted incentive system will attract investments for strategic sectors.

Congress has not yet approved the CITIRA bill, which aims to gradually lower corporate income tax to 20% and streamline the tax incentive system. Congress is expected to resume on May 4.

The Duterte administration has so far passed three measures that raised taxes, such as the Tax Reform for Acceleration and Inclusion law.