The Department of Finance (DOF) is set to submit within this month the proposed second package of tax reform program to ensure the incremental state revenues to be used to fund the Duterte administration’s priority infrastructure and social protection programs.
The second package involves reforms on corporate income tax as well as fiscal incentives.
In a briefing at Malacanang Monday, Finance Secretary Carlos Dominguez III said packages two to five of the tax reform program are crucial for the current administration to be able to meet the targeted three percent budget deficit ceiling.
He said the other packages will also be submitted within the year, with package four, which involves the reform on passive income and financial taxes, set for submission by July.
He, however, said that submission of package 5 is yet to be decided since some of its features have been included by lawmakers in Package 1.
He, however, pointed out that approval of all the tax reform packages is needed.
“If Congress does not pass sufficient tax reform, either the deficit will be breached or spending needs to be cut,” he said in his presentation.
Package 1-A was signed into law by President Rodrigo R. Duterte last December and for implementation starting this January.
Dominguez said the first tax reform package corrects the two decade-long inequity in the tax system since it reduced personal income tax rates, thus, enabling 99 percent of taxpayers to get additional take home pay.
He said lawmakers have vowed to pass Package 1-B of the proposed reform in the middle of this year.
Package 1-B involves estate tax amnesty, general amnesty, motor vehicle user tax and relaxation of bank secretary and automatic exchange of information.
Dominguez said there is a need to approve the tax reform to finance the government’s infrastructure and social services programs until mid-2022, among others, pointing out that this measure is projected to generate around PHP2 trillion worth of revenues.
“Our infrastructure program is about PHP8 trillion. It is not wise to borrow everything. It is just like any business. You have to have your own capital. This is our capital so we would like to raise more or less something in the area of PHP2 trillion for this, around 25 percent of the total,” he said.
Dominguez said estimated impact of these reforms on inflation is around 0.7 percent this year, not enough to breach the government’s two to four percent target until 2019.
He stressed that all these reforms are not mainly targeted to increase state revenues since some are aimed at making the tax system fair.
He cited that for one, the tax on interest income, which to date is 20 percent for peso-denominated investments with tenors of less than five years, is high.
He said this is “a bit anti poor” because those belonging to the lower bracket of society normally cannot park their funds for longer than five years.
“Right now the current tax system favors the wealthier people in the country,” he said.