THE approved substitute bill for the Comprehensive Tax Reform Program (CTRP) may generate lower potential revenue for the government than originally proposed, the Department of Finance (DoF) said over the weekend.
As a result, it could have dire consequences on the programmed deficit-to-gross domestic product (GDP) ratio as deficit spending comes under pressure from the requirements of infrastructure development, according to an analyst.
The House Committee on Ways and Means’ substitute bill is expected generate potential revenue of P82.3 billion in the first year of implementation, based on a DoF document obtained by reporters.
The amount is merely half of what the Duterte administration planned for, or 47 percent down from P157.2 billion the economic managers originally estimated under the proposed House Bill (HB) 4774, which contains Package One of the CTRP.
Package One seeks to lower the personal income tax (PIT) rates, rise the excise taxes on oil and automobiles and broaden the value-added tax (VAT) base while retaining exemptions for senior and persons with disabilities.
But the House Committee on Ways and Means approved last week a substitute bill consolidating HB 4774 with other similar bills. The substitute bill modified the original measure.
“The main difference is that the Committee on Ways and Means version has a general repeal clause for VAT exemption. Our version has itemized repeal of around 95 special laws,” Finance Undersecretary Karl Kendrick Chua told reporters.
“What they did is, instead of listing one by one, they made a general repeal. So our concern is that it may not be strong enough. It can be contested to courts and that is what we want to clear,” he said.
Wider budget deficit
“Lower gain from the government’s tax reform program could translate to higher government borrowing and a wider budget deficit,” Land Bank of the Philippine market economist Guian Angelo Dumalagan said.
This would compel the government to tap other sources of funding to finance its aggressive infrastructure plans, he said.
The government is targeting a 3 percent deficit-to-GDP ratio in line with the need to spend P8.2 trillion on infrastructure from 2017 to 2022.
“However, a lower-than-expected increase in tax revenues would unlikely prevent the government from funding its infrastructure projects given the abundance of liquidity in the domestic financial system,” Dumalagan noted.
“Package One will raise much more revenues to fund our infrastructure and anti-poverty programs,” the DoF said.
Under the House version, revenue from value-added tax may reach only P13.3 billion only—down 571 percent from P89.3 billion under the HB 4774.
Oil excise revenue at P73.7 billion is 0.9 percent lower than the P74.4 billion as originally penciled in by the government.
The excise tax on automobile sales could generate P14.2 billion under the House version, which is down 40 percent from P24 billion.
The revenue loss from lower personal income tax is estimated to reach P125.2 billion, down 9 percent from P137 billion.