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Consumption taxes to hit the rich the most

  • Written by People's Journal
  • Published in Business
  • Read: 719

It is a “fallacy” to believe that the proposed expansion of the value-added tax base and adjustments to the excise tax on petroleum products under the proposed comprehensive tax reform program are anti-poor because being consumption taxes, these will impact the most on affluent Filipinos who make use of more goods and services, rather than the poor, low-income and even the middle-class households, the Department of Finance said.

DoF Undersecretary Karl Kendrick Chua said the Duterte administration’s proposed Tax Reform for Acceleration and Inclusion Act, which contains these VAT and fuel excise tariff proposals, would even shield poor and low-income consumers from the effects of these tax adjustment proposals because the new government is committed to providing highly targeted direct transfer programs and indirect subsidies to them.
“Rather than being anti-poor, the tax reform plan will actually correct the injustice of only a few enjoying the benefits of growth. Our primary goal here is to give everyone a better chance of building a more stable future by equalizing opportunities for all through the adoption of a simpler, fairer and more efficient tax system,” Chua said.
Chua pointed out too that the imposition of an excise tax is always hinged on a two-pronged objective, which, in the case of petroleum products, is to raise revenues and the other equally important goal of addressing pollution and the other negative environmental effects of using fossil fuels.
“Given this, everybody should be responsible, both rich and poor. Equity considerations, therefore, should not figure in imposing the tax on petroleum products. What should be considered is how the tax will be adjusted to improve equity,” Chua said.
For instance, he noted that although diesel is widely used by both the rich and the poor, not doing anything to adjust its excise tax and indexing it later to inflation benefits the rich far more than the poor because the top 10 percent of households in the country consume almost 60 percent of oil products and the top one percent consume 20 percent.
“Not adjusting the tax would mean continuing to subsidize the rich who can well afford to pay for fuel,” Chua said. “The use of highly targeted transfers that benefit the poor and other vulnerable sectors is the better and more effective option in addressing equity concerns.”
He also corrected the false assumption that the proposed adjustment on the diesel excise tax would be P10 per liter, as the DoF proposal is only P6, which represents the accumulated inflation since this tax was last adjusted 20 years ago.
“The paramount goal of the DoF tax reform plan is poverty reduction as it aims to help the government raise enough funds for accelerated spending on priority projects under President Duterte’s 10-point socioeconomic agenda, which aims to transform the Philippines into an upper middle-income country by 2022,” Chua said.
These priority investments are in the areas of infrastructure, human capital and social protection for the most vulnerable sectors so as to make growth truly inclusive and let the Duterte administration achieve its goal of drastically reducing poverty, he added.
An additional P1 trillion is needed per year, said Chua, to fund these priority projects, which, when sustained, would put flesh into the Duterte government’s vision of transforming the Philippines into a high-income country in one generation by 2040.
“The poor will benefit from better roads, both urban and farm-to-market roads, public schools, health centers, and improved social services. The accelerated spending on infrastructure, human capital and social protection will equalize opportunities and give better chance to the future generations of Filipinos,” Chua said.
As for the expansion of the VAT base, Chua assured the public that there would be no increase at all in the tax rate and that all seniors and persons with disabilities would continue to enjoy their VAT exemptions on essentials such as raw food, education and health services, including medicine.