Tax reform to provide family of 4 with P15K windfall

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THE Department of Finance (DoF) belied the “erroneous and bloated computations” by critics regarding the impact of the revenue-enhancing provisions under the proposed Tax Reform for Acceleration and Inclusion Act (Train), saying the bill will provide a family of four earning P25,000 a month with an annual windfall of more than P15,000.

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In a statement Tuesday, Finance Undersecretary Karl Kendrick Chua said the effects of reforms proposed in the value-added tax (VAT) and the excise tax system “will be minimal because complementary measures to mitigate any price increases arising from the tax adjustments are also provided under the bill.”

Chua is countering the allegations by certain critics that the same family of four would have to cough up an additional P29,828.80 per year in expenses under HB 5636. The calculations included computational errors like double counting, according to the DoF official.

The claim that a house rental of P9,000 a month would rise to more than P12,000 is false because there would be no increase at all under the bill that was approved by the House of Representatives on May 31. The majority of lessors has revenues below the VAT threshold and is therefore exempted, according to the DoF.

The electricity rates for households consuming 200 kilowatt hours per month will only pay P70 more per months or P840 a year, which is less than the puffed-up estimate of P3,600 claimed by critics of the Train, Chua said.
House Bill (HB) 5636 or Train consolidated the original tax reform bill—HB 4774—and 54 other tax-related measures.

“The DoF expects potential price increases to be muted and complemented with programs to mitigate any price increases under Train. All in all, a family with a head of household earning P25,000 a month and with two children can expect to benefit an additional P15,512 annually,” Chua said.

For house rentals of P10,000 and below, Chua said the VAT exemptions were not explicitly removed under HB 5636, but pieces of property rented out by smaller property owners with annual revenues not exceeding the proposed

VAT threshold of P3 million a year remain VAT-free.

“To illustrate how unlikely this is, a property owner with rental of P9,000 a month needs to own at least a 28-door property, which is equivalent to a small building, to breach the VAT threshold. Given how unlikely this is, renters who pay P9,000 a month will effectively not be paying VAT under the proposal,” Chua said.

Chua said public transport fares are also supposed to remain the same because “legitimate public transportation operators with valid franchises will be covered under the government’s Pantawid Pasada program.”

For liquefied petroleum gas (LPG), Chua said the increase per year will amount to P548, significantly lower than the P776 estimate made by critics of the bill.

“A standard 11-kilogram tank of LPG contains around 20 liters. This is equivalent to a P60 peso increase per tank. According to a survey by the PSA, an average family consumes around 9 tanks annually. This is equivalent to an additional P548 a year,” Chua said.

“For electricity rates, small power utilities groups, which supply power to majority of Filipinos, have heavily subsidized rates and only a fraction of the generation cost will be affected by the excise tax. The DoF estimates that a household consuming 200 kWh will pay an extra P70 a month, which is P840 a year, in contrast to some critics’ estimate of P3,600 annually,” he added.

Taking into account other expenses such as rice, fish, sugar, coffee, milk and other food items and basic necessities, a family of four with two dependents will incur additional expenses of P4,488 per year, which will be offset by the P20,000 annual increase in their takehome pay or a net benefit of P15,512 as a result of lower personal income tax rates, Chua said.

He said the DoF estimates the inflationary impact of the oil excise will be 0.9 percent on top of the usual inflation.
“The DOF’s computation is even higher than the estimates of the Bangko Sentral ng Pilipinas of 0.6 percent increase. The critics’ estimate is much higher at 5 to 6 percent. that’s why their price increase estimates for food items is significantly higher,” Chua said.

 

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