Grand slam for tax reforms

In baseball, a grand slam is a home run hit with all the bases loaded. That means that each base has a runner and that the single home run, the grand slam, scores four runs (points), in one fell swoop.

In tennis, basketball, football, and other sports, a grand slam means winning all the major competitions or tournaments in a season.

From here, we can expand the coverage of a grand slam, and it can be applied as well in legislation. Concretely, winning all the major tax reforms in succession and within one political administration, is a most difficult feat and hence should be treated as a grand slam.

At present, we are seeing a grand slam on tax reforms about to happen.

In the previous Congress or in the first half of the Rodrigo Duterte administration, the legislature passed the contentious first package of the Tax Reform for Acceleration and Inclusion (TRAIN). The package in itself is big and overwhelming. Among other reforms, the first package includes the reduction of the individual income tax; the increase in the excise tax on fuels, automobiles, coal, and mining; the introduction of a tax on sugar-sweetened beverages; and the reduction of items that are exempted from the value-added tax (VAT).

Another significant tax reform that happened in the first half of the administration is a series of legislation increasing tobacco excise taxes to finance the universal health care (UHC) law. The UHC is likewise a landmark piece of legislation.

Moreover, one can claim that the removal of the quantitative restrictions on rice imports and its replacement by a 35% tariff is a tax reform. A tariff, after all, is a tax on imports. This new law will result in lowering the price of rice, and rice being the main component of the inflation basket, will significantly lower over-all inflation. At the sane time, the shift from quantitative restrictions to tariffication will create the conditions for Filipino rice farmers to enhance efficiency and productivity,

Despite these pivotal solid gains, overhauling the tax system to achieve equity, simplicity, efficiency, and certainty of revenues is not over. Four crucial reforms remain: corporate tax and fiscal incentives reform; increase in the excise taxes of alcohol products, e-cigarettes, and heated tobacco products (collectively known as sin taxes); property valuation tax reform; and passive income tax reform.

Accomplishing the legislation of the remaining reforms is on track. The House of Representatives, with Congressman Joey Salceda leading the charge, passed the most difficult and most controversial of the remaining reforms — specifically, the rationalization of fiscal incentives and the increase in the sin taxes — in one month. Observers and career officers at the House of Representatives say that that the passage of the bills in quick succession in a span of one month is a record.

The Senate, too, has stepped up. The Senate Ways and Means Chair, Pia Cayetano, has completed the Committee Report on increasing the tax rates on alcohol, e-cigarettes, and heated tobacco products. The Report has been submitted for second reading.

She will be wrapping up the deliberations on the Corporate Income Tax and Incentive Rationalization Act (CITIRA), buoyed up by the strong support from the local business chambers and the acceptance after much opposition by the Philippine Economic Zone Authority of the bill, with some modifications to allow for a reasonable transition.

To return to the baseball metaphor, Senator Cayetano will be batting on the plate for the grand slam. (Credit must be given to Congressman Salceda for loading the bases.) She can do so.

The Senator graduated with degrees in economics and law, both with honors, at the University of the Philippines. She understands not only the economic principles and concepts behind tax policy, but also the pragmatic legal framework that underpin it.

Furthermore, in the conduct of the hearings on CITIRA and the sin taxes, Senator Cayetano has shown her preparedness and diligence. She, too, has been participatory, inviting all stakeholders to articulate their positions. At the sane time, she has shown political deftness and critical discernment in advancing the bills. At one point, she rebuked PEZA’s (Philippine Economic Zone Authority) Director General Charito Plaza, for being redundant, unreasonable, and even outrageous. Senator Cayetano asked Director General Plaza: “Are you resistant to all reforms? Because at least some reform is going to happen.”

We are now nearing the end game. With respect to CITIRA, the tide has turned in its favor. The major stakeholders — government, agencies, civil society, business, and academe — have all lent their support to the measure. Even PEZA, which was most resistant to it initially, is now more than open to finding common ground that will be consistent with the goals of the reform.

The business stakeholders have raised their biggest concern over the measure: uncertainty. Further delays in its passage would mean uncertainty over the rules of the game and the fiscal and macroeconomics prospects. It has been noted that foreign direct investments suffered a recent dip. The passage of the CITIRA will lead to a recovery of foreign direct investments as it modernizes the incentive structure and makes corporations more competitive with the gradual lowering of corporate income tax. The CITIRA will secure a favorable environment for foreign and domestic investment, employment, and ultimately economic growth. Hence, CITIRA must be passed soonest — in 2019.

Similarly, it is most crucial for the sin taxes to be passed within the year in order that additional revenues can be immediately generated for the underfunded UHC.

The role of the Executive at this juncture is to nudge Congress, particularly the Senate, to pass CITIRA and the sin taxes. Concretely, the Executive must issue a certification of urgency for the two bills.

With the momentum that has been gained, we can expect the rest of the reforms to advance upon the passage of CITIRA and the sin taxes.

To Senator Pia Cayetano, Congressman Joey Salceda, the Department of Finance, and the other reform advocates; Go for the grand slam!

AJ Montesa and Filomeno S. Sta. Ana III are part of the tax reform team of the Action for Economic Reforms (www.aer.ph).