DOF has 2 solutions to tax-reform problems

The Department of Finance (DOF) will expand the val­ue-added tax (VAT) base and raise the excise tax on diesel to recoup losses from the pro­posed reforms on corporate and income taxes that would result in the reduced tariff payments of wage earners and business firms.

As part of Package One of its comprehensive tax plan, the DOF has proposed to Congress a reduction in per­sonal income taxes that would benefit wage earners and oth­er low-income workers the most, but seeks to offset the projected revenue loss by ad­justing excise taxes on diesel and broadening the VAT base through the of lifting certain exemptions.

A DOF official said the proposed comprehensive tax-reform program was not anti-poor because an increase in VAT and excise taxes, which are based on consumption, would impact the most on rich Filipinos who make use of more goods and services, rath­er than the poor, low-income and even the middle-class households.

Accumulated inflation

Finance Undersecretary Karl Kendrick Chua said the pro­posed adjustment on the diesel excise tax would be only P6 per liter, which represents the ac­cumulated inflation since this tax was last adjusted 20 years ago.

Shield for poor

Chua said the Duterte admin­istration’s proposed Tax Re­form for Acceleration and In­clusion Act now pending with Congress and which contains the proposed adjustments in the VAT and fuel excise taxes, 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.

Better chance

“Rather than being anti-poor, the tax reform plan would 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,” said Chua, a former World Bank economist.

Chua sad 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 also address 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 im­ prove equity,” Chua said.

Diesel

He said that diesel, for in­stance, is widely used by both the rich and the poor, and not doing anything to adjust its excise tax and indexing it later to inflation would benefit 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 consumes 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.”

Poverty reduction

Chua also said, “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.”

Growth agenda

Under the Duterte growth agenda, priority investments will be in infrastructure, hu­man capital and social protec­tion for the most vulnerable sectors so as to make growth truly inclusive and let the 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 ad­ministration’s vision of trans­forming the Philippines into a high-income country in one generation by 2040.

Infra, social services

“The poor will benefit from better farm-to-market and urban roads, public schools, health centers, and improved social services. The accelerat­ed spending on infrastructure, human capital and social pro­tection will equalize opportu­nities and give a better chance to the future generations of Filipinos,” Chua said.

Elderly citizens

As for the expansion of the VAT base, Chua assured the public there would be no in­crease at all in the tax rate, and that all elderly citizens and persons with disabilities would continue to enjoy their VAT exemptions on essentials such as raw food, education and health services, including medicine.

Fallacy

The VAT threshold would also be raised for micro and small-scale enterprises, from the current limit of P1.9 million to the proposed P3 million, so that purchases from small businesses like sari-sari stores where the poor buy their needs would remain exempted from VAT payments.

“Again, it is a fallacy to believe that the revenues from expanding the VAT base would be mostly coming from the poor, In fact, the princi­ple of VAT lies on how much one consumes—meaning the more ‘VATable’ items one consumes, of course, he/she would have to pay more tax,” Chua said.

Aircon, cars

For instance, better-off fami­lies who use air-conditioners would have to pay more taxes than their low-income coun­terparts who normally use electric fans to cool themselves at home, Chua said.

The same is true, he add­ed, for people with two or more cars, or those who dine out, which are amenities that the poor cannot afford.

“Even then, we should not forget that the income-tax re­lief included in the proposed tax-reform plan would be ben­eficial most especially to the low- and middle-income tax­payers with modest living con­ditions,” Chua said. LUIS LEONCIO