ALTHOUGH there is a need for the Philippine government to raise an additional P366 billion per annum over the medium term for fresh investments in infrastructure, education, and public health, income taxes must be brought down to a “more reasonable” 25 percent from the current 32 percent. Instituting reforms in both tax administration and tax policy would help government collect enough revenues needed for its unprecedented public investments program, says Finance Secretary Carlos Dominguez 3rd.
This is why the Duterte administration has been pushing for the swift approval of CTRP or Comprehensive Tax Reform Program, in Congress, with a cut in personal income tax rates as its first package. “We are going to do that not only because it was a campaign promise, but, more importantly, because it makes good economic sense,” Dominguez says Friday in a speech before The 5th Business Forum, organized by The Manila Times, in Davao City. The lowering of corporate income taxes is covered in the succeeding package, he adds.
Should tax rates remain higher than in neighboring economies, the Philippines would not be able to attract more investment into the economy. Lowered income tax rates, however, would have corresponding measures for revenue generation, such as the adjustment of excise taxes on fuel and automobiles as well as the expansion of the VAT or value-added tax base. These measures are contained in a new bill pending in Congress which also seeks to retain the exemptions enjoyed by senior citizens and those with disabilities. Lower income taxes would also lessen the urge in many citizens not to pay their dues, Dominguez says, and would do away another disincentive for investments.
“It is difficult to imagine that an economy as complex and as dynamic as ours has a large taxpayer base of less than 3,000 individuals and corporate companies,” he tells an audience of about 350 business executives, diplomats, politicians, and government officials at the Marco Polo Hotel. Addressing the forum dubbed “The Philippine Economic Outlook for 2017: Peace Toward Sustainable Prosperity,” Dominguez bats for the tax-reform package besides implementing reforms in tax administration, saying the Bureau of Internal Revenue and the Bureau of Customs “are already yielding over 97 percent of their respective targeted collections.” He stresses, however, that even a 100-percent collection performance would still not be enough to fund the massive investment program planned by the ruling administration.
Massive spending for infrastructure alone, Dominguez says, would require up to P8 to 9 trillion over the medium term. Not to mention that tax-collection in the Philippines continues to be one of the lowest in the region. “This reflects in the low investment rate that is due to small public investments as much as it is due to chronically low-savings rates,” Dominguez says in his presentation titled “No Taxes, No Infra.” He says public investments must be raised alongside efforts to grow the capital markets and extend the reach of the banking system as 86 percent of Filipinos are still unbanked. “The infra gap raises costs all around and prevents our economy from being fully competitive,” he adds, talking also about the need for the Philippines to invest more on infrastructure and catch up with its neighboring economies (see cover story). “That further compounds the poor investment rate.”
As the Times reported Saturday, the Philippines, according to Dominguez, is poised to sustain strong economic growth—which last year was at 6.8 percent—owing to more investments expected from both private and public sectors, a benign inflation rate, and an investment-grade credit rating. The only uncertainty seen from afar, he says, is the perceived rise in protectionism that the current US presidency might take seriously.
Whatever happens, the Duterte administration is bent on pursuing its 10-point socioeconomic agenda (see cover story), considering that the Philippines’ “demographic sweet spot” is about to happen, thus it needs to sustain economic growth that would, in turn, create jobs for the young Filipinos, whose ranks keep on increasing. “Investment-led growth creates meaningful employment,” Dominguez says. “It draws our younger workers into jobs that require globally competitive skills. It allows us to optimize assets that are scarce such as land. It draws us to our advantages, such as a young labor force capable of learning and doing new things.”
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CARLOS DOMINGUEZ III
Secretary Department of Finance
WITH over 40 years of experience managing various organizations in the public and private sectors, Dominguez was either a shareholder, board chairman, or member of more than a dozen corporations across various industries—power, agriculture, mining, banking, hospitality, real estate, and investment.
He was past president of such leading Philippine corporations as Philippine Airlines, Philippine Associate Smelting and Refining Corp., and the former BPI Agricultural Bank. He had held notable positions, such as Environment Secretary and Agriculture Secretary, during the presidency of Corazon Aquino.
Dominguez attended Stanford University’s Executive Management Program, and he holds an MBA from the Ateneo de Manila University.