Tax reform, budget implementation set

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‘One of the TRAIN’s most significant breakthroughs is that, beginning Jan. 1, 2018, those earning below P250,000 (a year) will be exempt from income tax,’ President Rodrigo R. Duterte said of the Tax Reform for Acceleration and Inclusion in his remarks during the signing ceremony on Dec. 19, 2017 at Malacañan presidential palace. -- BW FILE PHOTO

By Arjay L. Balinbin

PRESIDENT Rodrigo R. Duterte yesterday signed into law the P3.767-trillion national budget for 2018 and the first of up to five tax reform packages — major measures crafted by his administration to help put economic growth on a faster lane and lift more Filipinos out of poverty.

Signing both measures — Republic Act No. 10964 or the General Appropriations Act for 2018 and RA 10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) — in simple ceremonies in Malacañan Palace puts them on track for prompt implementation starting Jan. 1.

In his speech, Mr. Duterte described the TRAIN as “the administration’s biggest Christmas gift to the Filipino people as 99% of taxpayers will benefit from simpler, fairer and more efficient tax…”

The entire tax reform program aims to shift the burden to those who can afford to pay more and raise additional revenues to help support the Duterte administration’s “Build, Build, Build” program that will see P8.44 trillion spent on major public infrastructure until he ends his term in mid-2022.

“One of the TRAIN’s most significant breakthroughs is that, beginning Jan. 1, 2018, those earning below P250,000 (a year) will be exempt from income tax,” Mr. Duterte said.

“The law also addresses long-overdue corrections in our tax laws and introduces a more progressive tax system for the rich and the poor…” he added.

“Revenues from the TRAIN will fund our priority projects to ensure quality education — including free tuition in state universities and colleges — quality health care, social protection and conditional cash transfers, improved infrastructure… and the reconstruction of Marawi” City that was razed as government forces battled Islamic State-inspired militants there for five months from late May.

The measure — initially projected to rake in an additional P130 billion before last-minute insertions last week pared this down to a little more than P90 billion — cuts personal income tax rates, and makes up for the expected foregone revenues by reducing exemptions from value added tax, increasing excise tax rates for fuel and automobiles and introducing an excise levy for sugar-sweetened drinks.

It also doubles taxes for some investment products as well as the mining excise tax, and increases levies for tobacco and coal, while streamlining and reducing estate and donors’ tax rates, among others.

Mr. Duterte was silent on controversial last-minute inclusions like changes in tobacco and coal tax schemes that some observers have alleged favor certain companies.

“I am directing the Department of Finance to ensure effective implementation of Package 1 of TRAIN and to immediately submit to Congress Package 2 which deals with corporate income tax early next year…” he said, referring to his administration’s move to cut the corporate income tax rate — currently at 30% — to about 25% in order to match levels of competitors for investments elsewhere in Asia.

Finance Secretary Carlos G. Dominguez III has said his department hopes to persuade Congress to make up for the first package’s revenue shortfall by approving next quarter “the second part of the package” that will include an excise tax amnesty, easing of the bank secrecy law and an increase in the Motor Vehicle Users Charge in order to bring projected revenues of the entire package back closer to P130 billion.

Sought for comment, Tax Management Association of the Philippines President Maria Lourdes P. Lim said she “welcomes the approval of the package 1 of the tax reform measure, primarily because it reduces the personal income tax, which will redound to the benefit of the working class, and because it will increase their take-home pay, and they will have more disposable income.”

“But there are some proposals which appeared to have significantly departed from the earlier version and some of these were not even included during discussions in the past. For example, we see that… DST (documentary stamp tax)… rates were simply doubled. I don’t know where that came from in terms of whether there was a study made,” she added.

“We were caught off guard. During the hearings, we did not discuss that at all.”

For Ramon C. Casiple, executive director of the Institute for Political and Electoral Reform, “Congress is living up to its practice which is basically inserting provisions that there might be actually either loopholes or opportunities for them, and that is the reality there.”

In the same remarks, Mr. Duterte noted that the 2018 national budget — the first crafted by his administration — is 12.4% more than 2017’s P3.35-trillion spending plan and “will primarily support infrastructure development and free education in state universities and colleges, universal health care, free education, and the maintenance of peace and order across the country.”

In a press release, Senator Loren B. Legarda — who heads the Senate’s Finance committee — said that the new national budget gives social services the biggest slice of the pie at 38.7%, followed by economic services with 30.5%, general public services with 16.4%, debt payment with 9.8% and defense allocation with 4.6%.

“The two laws that I signed today are fulfillment of my campaign promise to institute genuine fiscal reform that will be felt by every Filipino,” Mr. Duterte said in his speech.

“The implementation of these laws will serve as our national, initial step towards cutting poverty rate to 14% [from 21.6% in 2015] and making the Philippines an upper middle-income country by 2022.”