Making tax reform work


    FOR sure, the tax reform package endorsed by the Duterte administration will make it through the Senate, after it passed the House of Representatives, and eventually be signed by the President into law as the administration enjoys majority support in both houses of congress.

    Former senator Rene Saguisag has characterized the majority of lawmakers of the 17th Congress as echoes of Malacañang and not the true voices of the people who elected them.

    But that is not the point. The administration needs money to fund its economic vision for the Philippines to achieve high-middle income status with a per capita gross national income (GNI) of $4,100 by 2022, and high income status with a per capita GNI of $12,000 by 2040.

    Raising average incomes will reduce the poverty rate from 22 percent to 14 percent by 2022 and help eradicate extreme poverty by 2040, according to the latest edition of Capital Markets Research published by First Metro Investments Corp. and the University of Asia and the Pacific (FMIC-UA&P).

    It is as simple as that, except for the performance conditions the economy must hurdle before the economic managers can realize the utopian dream of inclusive growth, where no one is left behind, and most Filipino families have their own house and car, and can travel wherever they want to without getting harassed by corrupt police officers or caught in an armed conflict between government troops and militants of whatever brand.

    First, the gross domestic product or GDP—a measure of the goods and services produced by a country in a given period—must grow by at least 7 percent a year in the run-up to achieving the thought behind the visionary minds of the economic managers. Second, the growth must come from at least 30 percent investment. The ideal mix is 70 percent consumption and 30 percent investment, from the current ratio of 80:20. Third, there must be new investments in human capital and infrastructure to raise productivity.

    The third point is where money talks, because training and educating the labor force and developing infrastructure such as new roads and bridges, railways and airports and seaports, need a constant supply of funds.

    That’s where tax reform comes in. In simple terms, tax reform seeks to lower the income tax while expanding the value-added tax base and increasing excise taxes on automobiles and petroleum products and sugar sweetened beverages.

    Citing government data, FMIC and UA&P placed the amount of investment at P2.2 trillion by 2022 or an additional P366 billion a year, as public investments on infrastructure are targeted to reach up to 7.4 percent of GDP on key infrastructure that is constraining economic growth.

    The Senate still has to approve what the House passed on third and final reading, and there may be some major problems that must be resolved through productive and intelligent reasoning, particularly among the senators.

    There is risk in understating revenue loss by exempting a larger percentage of taxpayers. As a result, according to FMIC-UA&P, the tax reform package ends up with a narrow tax base, which may compel the Duterte administration to pencil in a wider fiscal deficit to fund infrastructure and human capital development. The wider the fiscal deficit, the harder it takes to sustain it, not to mention the risk of credit rating downgrades that will make government borrowings more expensive.

    Inflationary pressures are also a risk, from the excise tax increase in petroleum products and cooking gas or LPG.

    At the end of the day, it’s not about what is good for the senators and congressmen. It has to be for the greater good of Filipinos, and making tax reform work is the job not of politicians but well-meaning lawmakers and administrators of this nation.


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