WITHOUT COMPREHENSIVE TAX REFORM

DoF warns of cut in 2018 infra budget

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The Department of Finance (DoF) said the administration may consider cutting the infrastructure budget for 2018 if the proposed comprehensive tax reform program remains unpassed by Congress.

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The DoF submitted the tax reform package proposal that assumes income tax cuts and the accompanying revenue measures to Congress in September 2016. According to its original plan, the package needs to be in place by mid-2017 or early 2018.

As the Comprehensive Tax Reform Bill remains pending before the House Committee on Ways and Means, Finance Secretary Carlos Dominguez 3rd addressed queries about the repercussions of delay in its passing, saying it would affect the government’s spending program for public infrastructure.

“Definitely the infrastructure program will be brought down a bit,” he told reporters at the close of business hours just before the weekend, but declined to say by how much the budget would be cut.

“If you look at the original plan it will be either effective July 1,[2017] or the first part of 2018 [January 1],” he said.

Dominguez did not give a figure for the exact amount the Duterte government plans to spend on infrastructure projects in 2018 alone. However, based on the fiscal program for 2015-2019, capital outlays expenditure is programmed at P1.076 trillion, or 6.1 percent of gross domestic product (GDP) for 2018, but that includes spending not just on infrastructure, but also equity and capital transfers to local governments.

On separate occasions, Duterte’s economic team has also mentioned a target of between P8 trillion and P9 trillion for infrastructure spending during his six-year term.

Earlier, Socioeconomic Planning Secretary Ernesto Pernia said it would be difficult for the government to formulate its revenue and expenditure assumptions for 2018 without a comprehensive tax reform in place.

To date, the DOF-proposed tax reform program that was filed about three months ago, has not been adopted by the House Committee on Ways and Means into a House Bill. This is in contrast to House Bill 4144, which seeks to retain the two-tiered excise tax rate for tobacco products, approved on third and final reading by the Lower Chamber on December 13, barely two months after it was proposed by ABS Partylist Rep. Eugene Michael de Vera in October.

2018 budget assumption: P3.82T
Most of the calculations in the 2018 national budget were premised on the assumption that the proposed tax reform package will then be in effect.

For instance, the government’s fiscal program assumes a national budget of P3.82 trillion, up 14 percent from the P3.35 trillion approved for 2017.

The income tax cuts and accompanying revenue measures in the tax reform package were submitted by the DoF to Congress in September 2016.

The first package of the program aims to generate a net gain of P174 billion, equivalent to 1 percent of GDP in 2018.

The package aims to make the tax system more progressive by lowering the personal income tax (PIT) rates to a level that is on a par with the region. It seeks to expand the value-added tax coverage by limiting exemptions to raw food, education and health care, while increasing excise taxes on oil and automobiles.

The DOF has said it would be allocating between a quarter and a third of the net gain from the proposed reform measures to the anti-poverty program called the conditional cash transfers (CCT), lifeline electricity subsidies, direct discounts and higher Philippine Health Insurance Corp. (PhilHealth) coverage, among other targeted subsidies. The aim is to cushion the impact of higher fuel prices resulting from the adjustments to the excise tax on petroleum products.

“I wish it would go faster, but this is the way legislatures move,” Dominguez said.

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