One of the key Congress supporters of the Duterte administration’s Comprehensive Tax Reform Program (CTRP) has advised cooperatives opposing the measure to focus on sound fiscal management, rather than rely on continued tax incentives, to ensure the success of their economic endeavors.
Albay Rep. Joey Salceda, a senior vice chairperson of the House ways and means committee, said lifting the value-added tax (VAT) exemptions of cooperatives aims to plug the massive leakages under the country’s current tax system.
He claimed in a recent tax forum that although the benefits enjoyed by cooperatives amount to P6 billion, the leakages arising from the VAT exemptions given to them reach about P25 billion because the system had been abused by some enterprises that have sought to shield themselves from taxes by forming cooperatives and taking advantage of the tax perks such organizations enjoy.
Salceda pointed out that in his province, the Albay Capitol Employees Multi-Purpose Cooperative, which had an initial capital of P3 million, was able to grow this amount to P103 million, not because of the tax incentives given to it, but because of sound financial management.
“I gave them P3 million (when I was governor), now they made it P103 million. It didn’t come from the tax measure. They went very high because of good management–good fiscal and financial management,” Salceda said.
He said in Legazpi City, another cooperative with an initial capital of P3 million was able to multiply this amount to P130 million.
“That did not come from tax incentives,” Salceda said.
Salceda’s statements were in response to the opposition by certain cooperatives to the CTRP-proposed removal of the VAT exemptions they now enjoy under the Tax Code.
Under the first package of the CTRP that aims to lower personal income tax rates, the accompanying revenue-enhancing measures include the expansion of the VAT base, which will be done by removing over 100 exemptions found in special laws, except those enjoyed by seniors and persons with disabilities.
VAT-exempt privileges will be limited only to raw food, education and health. In the case of cooperatives, those selling agricultural produce will continue to enjoy VAT exemptions.
Finance Undersecretary Karl Kendrick Chua said at the same tax forum that the government’s goal was not to take away benefits enjoyed by the poor, who are members of cooperatives, but to directly provide them these benefits and ensure that these reaches them by way of direct transfer programs such as cash transfers and other forms of subsidies.
“We are proposing to convert that benefit from a tax subsidy by [exemption]to a more targeted approach wherein we give the benefits directly to those who are in need through the budget. In other words, we are converting the producer subsidy to a consumer subsidy, and this is something we’re very keen on doing,” Chua said.
Moreover, micro and small cooperatives, which comprise 91 percent of the cooperative sector, will mostly be exempted from the VAT because under the CTRP, the VAT threshold for gross sales would be increased from P1.9 million to P3 million, Chua noted.
The cooperatives sector itself has pointed out that 91 percent of coops in the country are micro- and small- organizations while only 9 percent are medium- and large-sized.
Although micro and small coops make up the vast majority, they control only 13 percent of the aggregate assets in the cooperatives sector, while medium and large coops control 87 percent, according to data from the COOP-NATCCO partylist website.
The first package of the CTRP was introduced in the Congress as House Bill 4774 by Quirino Rep. Dakila Carlo Cua, who chairs the House ways and means committee.
Before the Lenten break of the Congress, the Cua-chaired House committee already agreed in principle to tackle the CTRP bill as a package, putting to rest concerns that the Congress might abandon the revenue-generating measures of the proposal and only pass the revenue-eroding portion, particularly the lowering of income tax rates.
Also called the “Tax Reform for Acceleration and Inclusion Act or TRAIN, the measure is complemented by Salceda’s HB 4888—the Tax Administration Reform Act or TARA. The information drives being conducted across the country to educate the people of the merits and advantages of these tax reform measures have been dubbed the “TARA na sa TRAIN” workshops.
According to Finance Secretary Carlos Dominguez III, the CTRP “will enable us to reshape our economic growth to make it more inclusive.”
“It is the tax reform package that will bring us to the irreversible path towards being a high-income economy in one generation and bring down our poverty rate to a mere 14 percent by 2022,” he said at the same tax forum.
The CTRP has gained the support of 14 former Department of Finance secretaries and undersecretaries plus five former National Economic Development Authority (NEDA) directors-general, who released last January a joint manifesto stating that the tax reform plan would “correct the structural weaknesses” of the country’s system and serve as a tool to decisively attack poverty and achieve inclusive growth.
Signing the joint manifesto were ex-DOF Secretaries Cesar Virata, Jose Isidro Camacho, Jesus Estanislao, Roberto De Ocampo, Jose Pardo, Cesar Purisima, and Juanita Amatong; ex-NEDA chiefs Arsenio Balisacan, Emmanuel Esguerra, Cielito Habito, Felipe Medalla, and Romulo Neri; and former finance undersecretaries Romeo Bernardo, Cornelio Gison, Lily Gruba, Milwida Guevara, Jose Emmanuel Reverente, and Florencia Tarriela.
Dominguez noted that the CTRP has been endorsed by multilateral institutions such as the World Bank, the International Monetary Fund, and the Asian Development Bank, by various business associations, foreign chambers of commerce, and civil society groups.