DOF unveils final draft of 4 tax reform packages

August 30, 2016 at 17:00

DOF unveils final draft of 4 tax reform packages

Dominguez wants simpler, fairer, more efficient tax system

by Chino Leyco | August 30, 2016 (updated)
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The Duterte administration will submit to Congress next month  four tax reform packages that support programs for infrastructure and human capital, while bringing down the oppressive tax burden on wage earners, Finance Secretary Carlos G. Dominguez III said.

Described as “a truly imaginative tax reform package,” Dominguez said the new administration’s proposed measures are consisted of personal income tax (PIT) and consumption tax; corporate income tax (CIT); property tax; and capital income tax.

“This program, which will be presented to Congress by September, 2016, will comprise four packages. Each of the package will correspond to a bill that balances policy trade-offs,” Dominguez said in a recent briefing with lawmakers.

While Dominguez admitted that their tax reform will have hurdles in Congress along the way, the finance chief said the government’s fiscal authorities are prepared to “make the challenge more interesting.”

“Today, the Philippines has among the highest tax rates in the region and among the narrowest tax bases. This is a condition tax reform should reverse,” Dominguez said. “We should aim to bring down tax rates while at the same time broadening the tax base.”

Wage earners

First on the list is the people’s top demand, the adjustment of the tax brackets to inflation, lowering of personal income tax rates to 25 percent except for the highest income earners, and the shift to a modified gross system.

If passed into law, the Department of Finance’s (DOF) first package will provide middle and lower income classes more money in their pockets, but at the same time, would result in revenue losses amounting to P159 billion.

To offset these losses, the DOF has proposed to expand the value-added tax (VAT) base by limiting exemptions to only raw food and other necessities like education and health.

The DOF is also proposing to raise oil excise and impose a levy on sugary products, while indexing these rates to inflation. To alleviate the effects on poor Filipinos, Dominguez has recommended programs for indigent individuals, like targeted subsidies.

Also under the package is the relaxation of the bank secrecy law for fraud cases and the inclusion of tax evasion as a predicate crime for money laundering.

Should Congress adopt the DOF’s first tax reform package, the government would generate fresh revenues amounting to P359.7 billion. Minus the P159 billion losses from PIT, the ultimate net revenue gain is seen to reach P200.7 billion.

Corporate tax

The second tax reform package is the reduction in CIT rate to 25 percent and the simplification of other corporate income tax provisions aimed at improving taxpayers compliance.

The DOF has estimated that foregone revenues from lower CIT would amount to P34.8 billion, but will be somehow compensated by the P33.8 billion proceeds from fiscal incentive rationalization.

Along with this proposal, Dominguez also wants to provide sunset provisions to existing incentives and is considering setting up a five-year adjustment period.

Likewise, the finance chief proposed to expand the coverage of the Fiscal Incentives Review Board to include all incentives recipients beyond government owned and controlled companies.

The DOF also wants to replace the gross income earned tax rate of five percent to a reduced corporate income tax rate of around 15 percent as well as limit VAT zero-rating to direct exporters.

Dominguez is also proposing to remove the use of tax credit certificate, instead give full and timely VAT refunds in cash.

The DOF is now asking Congress to pass tax reform packages one and two by June next year.

Property taxes

The third package is about property tax, which once passed into law, will lower estate and donor’s tax rates by around six percent. It will also rationalize valuation of properties by raising it closer to market prices.

“We aim to simplify the property tax system to unlock the land market and encourage more efficient land use that can help foster investment and job creation,” Dominguez said.

The reduction of estate and donor’s taxes entail P3.5 billion in revenue losses, while centralize and increase property valuation would generate P43.5 billion in fresh income. The government expects a net revenue gain of P40 billion from this package.

Dominguez is asking Congress to pass this measure by January, 2019.

Interest income cut

The fourth and final tax reform package is capital income tax.

Under the plan, Dominguez said the administration is proposing to reduce tax levy on interest income from peso deposits to 10 percent, while harmonizing all capital income tax rates at 10 percent.

He is also proposing to increase tax on stocks traded in the local bourse from 0.5 percent to one percent on gross selling price.

“With the help of Congress, we aim to pass this fourth package by January, 2019,” Dominguez said.

DOF’s wish list

Meanwhile, the finance chief revealed other tax measures may be also considered by lawmakers, including fatty food tax; luxury tax on automobiles, yachts, and jewelry; mining taxes; revisit sin taxes on tobacco and alcohol; carbon tax; and lottery and casino tax.

Dominguez explained other tax measures should be considered by Congress given the large investment requirement to achieve the Duterte administration’s vision of a poverty-free nation in one generation.


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