The Market Monitor Minding the Nation's Business
By Luis Leoncio
The proposed income-tax cuts hijacked by President Aquino are expected to be realized under the incoming administration, but with a consequent increase in the sales tax or the valued-added tax (VAT), according to the policy agenda drafted by President-elect Rodrigo Duterte’s economic managers.
Duterte’s economic team wants to hit the road running at the start of the new administration, hence, an unprecedented pre-inauguration two-day “business summit” has been set in Davao City for June 20 and 21 where the team and some of the country’s top business leaders will discuss a road map based on the administration’s economic agenda.
Among the key targets of the Duterte administration is to slash the highest income tax rates to 25 percent, with the expected revenue loss to be offset through a higher VAT rate, Budget Secretary-designate Benjamin E. Diokno said.
“(Incoming Finance Secretary Carlos G.) Sonny (Dominguez III) and I have been talking about this. We target to make our tax system efficient and competitive with Association of Southeast Asian Nations (Asean) neighbors,” Diokno said.
In a statement, the Duterte camp said the economic managers will meet with more than 300 business leaders from across the country during the summit dubbed “Sulong: Hakbang Patungo sa Kaunlaran.”
The summit was co-organized by the Philippine Chamber of Commerce and Industry and the Mindanao Business Council.
Incoming National Economic Development Authority (Neda) Director-General Ernesto Pernia will discuss the country’s economic situation and incoming Finance Secretary Carlos Dominguez will present the Duterte administration’s 10-point socioeconomic agenda, which are:
• To continue and maintain current macroeconomic policies, including fiscal, monetary, and trade policies.
• To institute progressive tax reform and more effective tax collection, indexing taxes to inflation. A tax reform package will be submitted to Congress by September 2016.
• To increase competitiveness and the ease of doing business. This effort will draw upon successful models used to attract business to local cities (e.g., Davao), and pursue the relaxation of the constitutional restrictions on foreign ownership, except as regards land ownership, in order to attract foreign direct investment.
• To accelerate annual infrastructure spending to account for 5 percent of gross domestic product (GDP), with public-private partnerships playing a key role.
• To promote rural and value-chain development toward increasing agricultural and rural-enterprise productivity and rural tourism.
• To ensure security of land tenure to encourage investments, and address bottlenecks in land management and titling agencies.
• To invest in human-capital development, including health and education systems, and match skills and training to meet the demand of businesses and the private sector.
• To promote science, technology, and the creative arts to enhance innovation and creative capacity toward self-sustaining, inclusive development.
• To improve social-protection programs, including the government’s Conditional Cash Transfer (CCT) program, to protect the poor against instability and economic shocks.
• To strengthen implementation of the Responsible Parenthood and Reproductive Health Law to enable especially poor couples make informed choices on financial and family planning.
The statement said the 10-point agenda “emphasizes the need to maintain accelerated economic growth while ensuring that gains are broadly shared by the Filipino people.”
“This effort is not a stand-alone undertaking. It is anchored on the long-term Filipino 2040 vision and the next medium-term Philippine Development Planning cycle, both led by Neda,” the statement read.
The Sulong summit will be the first of an annual series over the next six years, and perhaps beyond, in tandem with a civil-society consultative conference, according to the statement.
The president-elect is expected to attend the summit, as he will give his response to the results of the recommendations generated from the workshop.
Diokno said the current 32-percent tax rate imposed on workers earning P500,000 annually and the 30-percent corporate-income tax rate are outdated and regressive.
Diokno added to compensate for the lost revenues from the lower income -tax rates, the VAT will have to be raised to a targeted 15 percent from the current 12 percent.
Diokno expects the realignment of the tax schedules to be completed within two years.
Diokno acknowledged that the VAT-increase proposal would be unpopular but said it would be a good formula.
“If you pay a little bit more VAT but you get a lot of returns in terms of government expenditure on education, health, nutrition and better peace and order… I think you are better off,” he said.