The Market Monitor Minding the Nation's Business
More institutions have signified their support for the immediate enactment of the Duterte administration’s tax-reform package, which is pending in Congress, to maintain the economy’s growth momentum.
The Asian Development Bank (ADB) said it supports the proposed reforms in the excise taxes of automobiles and petroleum products authored by the Department of Finance (DOF), as these are highly “progressive tax measures” that would help support President Duterte’s 10-point socioeconomic agenda.
In his recent meeting with Finance Secretary Carlos Dominguez III, ADB President Takehiko Nakao said the ADB was also looking forward to the Philippiness’ hosting of the ADB’S 51st annual meeting of the Board of Governors in Manila on May 3 to 6.
Progressive measures
In his letter sent earlier to Nakao, Dominguez, on behalf of the government, said that, “following the Bank’s milestone of celebrating its 50th anniversary, it will be the Philippines’s pleasure to host the succeeding annual meeting and launch the Bank’s proposed vision for the coming years.”
Discussing a wide range of issues with Dominguez during the meeting, Nakao said he agreed with the DOF proposal to adjust the excise taxes on automobiles and petroleum products and acknowledged that these were “progressive tax measures.”
The ADB also projected that the proposed tax-reform program would improve the business environment and sustain further growth, and that revenue losses from the proposed reductions in personal income taxes (PIT) would be offset by broadening the value-added tax (VAT) base and increasing oil excise taxes.
ADB forecast
For the second half of 2017, the ADB forecasts an expansionary fiscal policy for the Philippines with a budget spending net increase of 11.6 percent over the 2016 level.
“If successfully implemented, the new government’s development agenda to step up spending on infrastructure, implement tax reforms, and cut red tape will sustain high growth rates and increase job creation,” ADB Country Director for the Philippines Richard Bolt had said in earlier projecting the country’s 2017 GDP growth at 6.2 percent.
An ADB study has shown that excise-tax collections in the Philippines have experienced a “dramatic decline” from 1997 to 2009.
The ADB has proposed increased excise-tax rates on fuel and tobacco and alcohol products, among other tax-reform measures to broaden the tax base and increase revenue collections.
Relatively regressive
“The country’s overall tax system is relatively regressive compared with other countries in the region,” the ADB said in its 2011 assessment of the Philippines’s fiscal policy.
The first package of the DOF-proposed tax reform program is contained in House Bill 4774, which was filed last January by Rep. Dakila Carlo Cua, who chairs the ways and means committee.
HB 4774 consists of a significant reduction in personal income tax (PIT) rates plus a corresponding set of revenue-compensating measures, which include lowering the rates for estate and donor’s taxes, expanding the value-added tax (VAT) base but retaining exemptions for senior citizens and persons with disabilities, and adjusting automobile and fuel excise taxes.
In the meeting, Nakao also expressed his deepest condolences to the victims of the recent earthquake in Surigao and reiterated the ADB’s offer of assistance in mobilizing resources to help the affected communities.
Populist policies
Dominguez and Nakao also briefly discussed the emerging China-led Regional Comprehensive Economic Partnership (RCEP), the rise of China’s economy, and the resurgence of populist policies across the globe.
Nakao said the ADB welcomes the RCEP initiative and views this as a positive development if it would succeed in further opening up trade in Asia.
As for the rise of populist and protectionist policies, Nakao said he believes sovereign states should prepare for such developments and acknowledged that they have a responsibility to provide social services to the people without overly relying on donor agencies.
The Philippine Chamber of Commerce and Industry (PCCI), the country’s largest business organization, also indicated its full support for the enactment of the tax-reform measures aimed at lowering personal income taxes while broadening the tax base by restructuring and increasing tax on consumption.
Virtuous cycle
PCCI President George Barcelon said lowering personal income tax would increase disposable income, spurring savings and consumption, which lead to increased production.
Barcelon said a virtuous cycle could ensue, where greater consumption and production could lead to a rise in tax collection.
Barcelon said reducing personal, as well as corporate-income taxes, would make them comparable with those enjoyed by citizens of neighboring Southeast Asian countries.
The Philippines, he said, has the highest tax rates (both nominal and effective) in the Association of Southeast Asian Nations (Asean).
Inflation, he said, has graduated many low-income earners into progressively higher tax brackets.
The country’s competitiveness can be further bolstered Barcelon stressed, if spending in public health expenditure, education, social protection and infrastructure, are at par with its Asean neighbors.
Barcelon said the country’s spending on social services and infrastructure has been well below its Asean neighbors.
Barcelon said government needs the incremental revenue expected that is to be collected once the new taxes are implemented, to finance planned higher spending on infrastructure and social services
Tax burden
The PCCI’s Taxation Committee, co-chaired by Benedicta Du-Baladad and Tammy Lipana, meanwhile, said the current tax regime was a burden, especially to SMEs.
Tax forms have become too complex, making compliance extremely difficult for small businessmen without the help of tax accountants.
SMEs have to file and pay a multitude of taxes almost every month, spending a considerable amount of time that would have been more productively used for creating and growing their business.
The PCCI panel said tax administration needed to be simplified to correct inefficiencies and to make it responsive and supportive of dynamic changes, make it competitive and empowering of the people and of industries and enterprises.