Govt expects P206B net revenue from tax reform

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Equivalent to 7% of P2.9T revenue target for 2018

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The government expects to generate P206.8 billion in net revenue equivalent to 7 percent of its P2.91 trillion revenue target next year, once the Tax Reform for Acceleration and Inclusion Act is implemented.

The measure, or House Bill (HB) 4774, is a revised package of the Department of Finance (DoF)-proposed tax
reform plan that was crafted and filed by House ways and means committee chair, Quirino Representative Dakila Carlo Cua.

The House-modified bill retains the DoF proposal of exempting from personal income tax payments those with a net taxable income of P250,000 and below and simplifying tax payments to increase the take-home pay of most taxpayers and make the system more fair and equitable. The P82,000 exemption for 13th month and other bonuses will remain.

The revised package includes lowering the rates on estate and donor’s taxes and expanding the value-added tax (VAT) base, but retains the exemptions enjoyed by senior citizens and persons with disabilities (PWDs) and modified the automobile and fuel excise taxes.

The bill seeks to repeal Section 33-A of the Magna Carta for persons with disabilities, which provides tax incentives for those caring for and living with a PWD.

In its original proposal submitted to the Congress last year, the DOF wanted to remove the tax privilege for senior citizens and persons with disabilities.

However, these will be compensated by complementary reforms which include a sugar-sweetened beverage
tax, indexing the motor vehicle user’s charge to inflation and granting an amnesty to past estate tax cases.

The estate tax, a tax imposed on the privilege of transmitting properties upon the death of the owner, will also be reduced from the current maximum rate of 20 percent to 6 percent under the revised tax reform plan.

The revised package also includes legislated administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as fuel marking to prevent smuggling, the use of e-receipts, the mandatory connection of the point-of-sale system to the BIR, and the relaxation of bank secrecy laws for investigating and combating tax fraud.

In a presentation on HB 4774 before the House ways and means committee, Finance Undersecretary Karl Kendrick Chua said these measures will incur the government a loss of P139.6 billion and a revenue gain of P302.1 billion next year, which will result in a net gain of P162.5 billion for 2018.

Along with P44.3 billion in revenue from the legislated tax administration reform, Chua said the government can raise a net revenue P206.8 billion next year.

Based on the Development Budget Coordination Committee (DBCC) program, the P206 billion net revenue from tax policy and administration reforms is equivalent to 7 percent of the P2.93 trillion revenue estimates for 2018.

In terms of its share to the economy, Chua noted the revenue gain from the tax reform will contribute 0.9 percent to the gross domestic product.

Only with this sizable increase in revenue can the government meet its goal of drastically reducing poverty and transforming the country into an upper middle-income economy in 2022 by spending big on infrastructure, human capital—education, health, life-long training and research and development—and social protection for the poor and other vulnerable sectors, Chua said.

“However, without this planned investment buildup via tax reform, the government will merely “muddle through” and cannot meet the prerequisites to high and inclusive growth, which are a growth rate of at least 7 percent per year, and driven by investments rather than by consumption,” Chua noted.

The estimated proceeds from the tax reform package will fund the government’s big-ticket development projects, particularly the infrastructure program, the DBCC said.

The Duterte administration target to ramp up spending on infrastructure to P1.83 trillion, education and training to P1.27 trillion, health to P272 billion and social protection, welfare and job generation for the poorest of the poor to P509 billion by 2022. The investment required is P2.2 trillion.

This would mean an estimated additional investment of P1.07 trillion in infrastructure, P718 billion in education, P139 billion in health and P267 billion in social protection each year over the next six years, Chua said.

“Tax administration, which includes improvements in both the BIR and BOC is equally important and is in fact the priority for 2017 before the tax policy reforms are fully implemented in 2018,” Chua added.

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