• ‘Duterte tax reform plan poses fiscal risk’

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    ING sees revenue loss of up to 1% of GDP if no offsetting provisions

    Dutch financial institution ING Bank Manila said that the incoming Duterte administration’s income and corporate tax reform agenda could pose risk to the country’s fiscal health by significantly reducing government revenues if there are no compensating measures to offset the loss.

    “Additional fiscal risk could rise if the new government pursues income/corporate tax reform without some offsetting revenue or tax measures,” ING Bank Manila senior economist Joey Cuyegkeng said in his latest market views released on Tuesday.

    For his view, Cuyegkeng said an income tax reform impact on government revenues varies from 0.2 percent to 1 percent of gross domestic product (GDP) while a cut in corporate income tax rate could mean a loss of 0.5 percent of GDP.

    Tax reform is a part of the new administration’s eight-point economic agenda, and aims to make tax administration more progressive by updating the income tax brackets and indexing tax collections to inflation.

    Incoming Finance Secretary Carlos Dominguez has said there will be changes in the tax system to reduce the “tax bite” on ordinary workers.

    “These tax tables were made years ago when P500,000 was worth more than what P500,000 is now. So now, if you earn P500,000, automatically you are taxed 32 percent.

    And if you spend, say, 80 percent of the remainder, you are taxed another 12 percent from VAT [valued-added tax],” he said.

    “The tax bite should be lower for those earning P500,000 today because that is less in real value to what the value was when the tax tables were made,” Dominguez explained.

    New revenue sources
    On Monday, the Department of Finance (DOF) has proposed a number of tax reform measures that could gain from P134 billion to P320 billion in additional revenue if implemented, including a new excise tax on petroleum products and an increase in the VAT from 12 percent to 14 percent.

    Outgoing Finance Secretary Cesar Purisima revealed the agency’s long-running study on tax reform, which contains components for comprehensive tax reform the next administration may consider pushing forward.

    This tax reform, if done holistically, has immense potential to re-engineer the Philippine
    economy toward a more equitable, dynamic, and competitive one, he said.

    However, ING’s Cuyegkeng expressed uncertainty whether new taxes could be implemented.

    “An increase in VAT or scope of VAT or a specific tax on oil products could more than cover the losses but would likely be unpopular,” he said.

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    1 Comment

    1. Dudirty is no economist, he is an “istambay” who did good at the “kantu”. He has that self acclaimed aura of grandiosity, he thinks he can gather together in one room, be on the same page, the treacherous moros, the loose cannons NPA, and the toxic island grabber Chinese. And how about the corrupt politicians he promised to get rid of? At the end of the day, Dudirty is still that “istambay” who did good among his peers.