The Department of Finance (DoF) said it is now estimating the revenue and deficit impact of the substitute measure to the Comprehensive Tax Reform Program (CTRP) bill approved by the House Committee on Ways and Means.
“The substitute bill largely follows the proposal of the DoF with some moderate changes. The team is now estimating the revenue and deficit impact of the substitute measure,” Finance Undersecretary Karl Kendrick Chua said in a statement on Thursday.
The committee voted on Wednesday to pass a substitute measure drafted by the panel’s Technical Working Group (TWG) that only had moderate changes from the original measure submitted last year by the DoF.
Chua hopes that with the substitute bill approved by the House ways and means committee following the traditional Lenten break of Congress, the House of Representatives could pass the tax reform measure before the Legislature adjourns on June 2.
“Substantial progress has been achieved in the House of Representatives,” Chua said. “We remain hopeful that with this committee vote for the substitute bill, the tax reform measure can still be approved at least by the House of Representatives before the Congress ends its first regular session this June. We will also convince the plenary to include some original provisions that were removed.”
The substitute bill, approved on May 3 by a 17-4 vote with three abstentions, consolidated the DoF-endorsed House Bill 4774, which contains the first package of the CTRP that aims to overhaul the country’s tax code by making the system simpler, more efficient and fairer, especially for the poor and low-income Filipinos.
Before the Lenten recess, the committee agreed in principle to pass tax reforms as a package, instead of specific parts of the tax reform proposals, and formed a TWG to draft the substitute bill for the panel’s approval after the six-week congressional break.
Among the key features of the substitute bill are the following: the lowering of personal income tax (PIT) rates as proposed by the DoF but indexed to cumulative Consumer Price Index (CPI) inflation every three years; a flat rate of 6 percent for the estate and donor’s taxes; broadening the tax base by removing special laws on value-added tax (VAT) exemptions, including those for cooperatives, housing and leasing, but retaining exemptions for seniors and persons with disabilities; staggered “3-2-1” excise tax increase for petroleum products from 2018 to 2020 but with no indexation to inflation, and liquefied petroleum gas (LPG) used as feedstock to be exempted from the hike; a five-bracket excise tax structure for automobiles with a two-year phase-in period for the tax increases; and earmarking of 40 percent of the proceeds from the fuel excise tax increase for social protection programs for the first three years of the tax reform measure’s implementation.
Chua said that for the VAT, the threshold for exemptions was increased to P5 million and indexed to inflation every three years.
The zero-VAT rate was also retained for the renewable energy sector and limited to direct exporters, pending the establishment of the DOF-proposed cash refund system, in which refunds can be obtained by the beneficiary-taxpayers within 90 days of their application for such exemptions, Chua said.
For the self-employed and professionals within the VAT threshold of P5 million, Chua said the substitute bill require them to pay an 8 percent tax on gross sales or receipts in lieu of the income and percentage taxes.
The tax for those above this VAT threshold will be based on the 30 percent corporate income tax rate with minimum tax, Chua said.
He said the Optional Standard Deductions (OSD) was retained at 40 percent of gross sales and receipts under the substitute bill.
This substitute bill adopted the DoF proposal to subject lottery and sweepstakes winnings from the Philippine Charity Sweepstakes Office (PCSO) to a 20 percent passive income tax in lieu of the lower 5 percent prize fund tax.
Another DoF proposal adopted under the substitute bill was the removal of the 15 percent tax rate for the employees of the Regional Operating Headquarters (ROH) of corporations, which are foreign business entities whose purpose is to service its affiliates, subsidiaries or branches in the Philippines and other foreign markets.
As proposed by the DoF, Chua said the fringe benefit tax will be initially lowered from 32 percent to 30 percent for the first three years and thereafter incorporated into the gross income of taxpayers.
On oil excises, Chua said the original proposal of staggering the P6 increase to P3 in the first year, P2 in the second year and P1 in the third year was adopted, but with no indexation to inflation.
For automobile excises, five brackets were adopted (based on price levels) under the substitute bill, which also set a two-year phase-in period for its implementation, he said.
Pickups are exempted under the substitute bill, along with hybrid cars if these vehicles can run 30 kilometers on a single charge.