The proposed tax reforms under House Bill (HB) 4774 have the potential to boost the Philippine economy this year and next by having a significant impact on consumption and investment, a central bank official said Tuesday.
Once signed into law, HB 4774 could add 0.6 percentage point to the gross domestic product (GDP) this year, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said.
Next year, its impact on the economy could be an additional 0.2 percentage point, he said.
“The lowering of income tax and corporate tax will translate immediately to higher consumption. On the part of government, infrastructure, human development and social protection for the poor could immediately impact consumption and investment,” Guinigundo told the Senate ways and means committee during a meeting on the tax reform proposals of the Department of Finance (DOF).
The government has set a GDP growth target of 6.5 percent to 7.5 percent this year, and 7 percent to 8 percent next year.
HB 4774 provides revisions to the DOF’s first package of Comprehensive Tax Reform Program (CTRP). It covers the lowering of personal income tax (PIT) rates and a corresponding set of revenue-compensating measures, including lower rates for estate and donor’s taxes and expanding the value-added tax (VAT) base but retaining the exemptions given to senior citizens and persons with disabilities and adjusting the automobile and fuel excise taxes.
Complementary reforms being considered by Congress to the revised package include the introduction of sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation and granting amnesty to unpaid estate taxes pending before the Court of Tax Appeals.
The revised plan carries the legislation of administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as the adoption of a fuel marking and monitoring system to prevent oil smuggling, collecting correct taxes and ensuring only high-quality petroleum products are sold in the market.
The reforms will allow the use of e-receipts, the mandatory link of point-of-sale (POS) systems of business establishments directly to the BIR and the relaxation of bank secrecy laws in investigating and fighting tax fraud.
Cash grants from fuel tax
The proposed fuel excise tax hike will fund the P36 billion of one-time unconditional cash grants to some 10 million households of the poorest 50 percent of the population, according to the DOF.
In a statement on Tuesday, Finance Undersecretary Karl Kendrick Chua said a provision will earmark 40 percent of additional revenue from higher and additional excise taxes on fuel to a targeted transfer program covering the poor and vulnerable sector in the first year of implementation.
The unconditional cash grants of P300 a month per beneficiary-family for a year are supposed to help households cope with what the government is saying is a temporary yet moderate price increase as a result of higher taxes on fuel.
Chua noted the cash grant per household is P3,600 per year, and that the aggregate amount is P36 billion for 10 million households, he said. Another P4 billion would cover the administrative cost of distributing the cash grants.
The DOF said its estimates show that the poorest 10 percent of households will incur a P532 increase in yearly expenses once the excise tax is in place an additional P522 a year once higher prices of transportation and commodities kick in.
“Thus, tax reform will have a positive impact on poor households who will receive the P3,600 cash subsidy, as they would have a net of P2,546 more to spend per year to help them cope with expenses,” Chua claimed.
“The targeted transfer program is to mitigate the initial shock of the increase in petroleum excises on the poor and vulnerable sectors. This will allow them to continue spending normally while adjusting smoothly to new price regimes, as well as to weather the initial one-to-two year potential inflationary effect on prices,” he said.
The four million beneficiaries of the Pantawid Pamilyang Pilipino Program (4Ps), plus 6 million more that would be targeted by the government from the poorest 50 percent of the population are covered by the additional cash grants, the DOF official noted.
While the unconditional cash transfer program is not perfect, it is far better than the current system that provides subsidies that mainly benefit the rich as the top 10 percent of households consume 51 percent of oil products, he said.
The government intends to set aside P8 billion more from higher fuel excise taxes to create a separate “Pantawid Pasada” project and a jeepney modernization program for public utility jeepneys (PUJs), Chua noted.
The Pantawid Pasada cash cards for PUJs to offset higher fuel prices will indirectly protect Households earning P9,000 to P16,000 a month from the impact of the fuel tax hike, the DOF official said, and that the jeepney modernization program will reduce fuel and maintenance costs as a result of more fuel-efficient engines.
“Under these twin initiatives, the pass-through cost from the fuel tax increase is expected to be at most 50 centavos per trip. It can even be zero impact if we do the mitigating measures well. This will benefit informal workers, minimum wage workers, and commuters,” he added.