The Market Monitor Minding the Nation's Business
By Luis Leoncio
The House committee on ways and means has approved in principle the first phase of the Duterte administration’s Comprehensive Tax Reform Package (CTRP) as package subject to the creation of a Technical Working Group (TWG) that would draw up a substitute bill consolidating the proposed reforms by the Department of Finance (DOF) with other tax-related proposals by the lawmakers.
Approving the bill in principle means that the measure would be tackled as a package, rather than per individual tax proposal which ensures that the CTRP would be discussed by the TWG in its entirety.
Finance Secretary Carlos Dominguez III has welcomed the move by the House panel hailing it as a way forward for Congress to help the Duterte administration fund its ambitious agenda to sustain the high-growth momentum, dramatically cut poverty and transform the country into a high middle-income economy by 2022.
The Duterte administration’s tax reform proposal is outlined in House Bill 4774, which aims to lower personal income tax (PIT) rates while providing revenue enhancing measures which, among others, seek to reform the excise tax system for fuel and automobiles and broaden the value added tax (VAT) base, while retaining exemptions for seniors and persons with disabilities.
The House panel’s approval also puts to rest concerns that the committee would only approve the bill’s popular provisions, which is the lowering of the personal income tax (PIT) rates, without the corresponding measures that would enable the Duterte administration to raise funds for its ambitious public investment program and offset the revenue erosion arising from the reduced PIT take, Dominguez said.
Finance Undersecretary Karl Chua said the TWG “is a very good sign” for the approval of the CTRP contrary to concerns that it will hamper the tax reform bill’s approval.
“It means that the positions have been heard and then we have to make a decision so it’s a good sign,” he said.
Chua remains optimistic of the tax proposal’s approval until July this year but cited that this remains in the hands of lawmakers. “It is not in our hands but we will try our best,” he said.
The TWG, which will include members of the House ways and means committee and the DOF, will discuss pending concerns by stakeholders about HB 4774 and consolidate all other bills related to the measure so that it could come up with a substitute bill that would be later submitted to the House ways and means committee for its approval.
The House ways and means committee, chaired by Rep Dakila Carlo Cua, would then vote on the substitute bill. Cua is the main author of HB 4774.
Dominguez said the Duterte administration’s tax reform package would “enable the government to make the country’s tax system more progressive, especially for low- and middle-income earners, and at the same time generate sufficient revenues for unmatched higher spending on infrastructure; on education, health and other forms of human capital development; and on social protection for the poorest Filipinos to cushion the initial impact of the proposed adjustments in consumption taxes.”
He expressed hope that the other members of the House of the Representatives as well as the senators would similarly see the urgency of passing this tax reform package in full, possibly by the middle of this year, “to set the economy on its irreversible path to high—and inclusive—growth under the Duterte presidency.
“Package One of the CTRP, as contained in HB 4774, is the launching pad for the Duterte administration’s 10-point socioeconomic agenda that aims to transform the Philippines into an upper middle-income economy (like Thailand) by the time the President steps aside in 2022 and into a high-income one (like Malaysia ) in one generation or by 2040.”
Dominguez said that “congressional action on the first phase of the DOF-proposed CTRP would help create a strong buffer that will insulate the country from the surge of protectionism now sweeping across the globe, and thereby keep the economy on its targeted annual expansion of 7 percent or better.”
“By doing so, the Congress would let the Duterte administration gain headway in its ambitious medium-term agenda to keep the country among Asia’s fastest-growing economies, cut the poverty rate from 21. 6 percent to 14 percent, and transform the country into an upper-middle economy by way of investment-driven in lieu of consumption-led growth.”
Fortunately enough, he said, the majority of the House committee members have apparently seen that the domestic economy is in its golden moment, and that, “If we fail to seize it, the conjuncture of opportunities will pass us and we will betray our people.”
For the government to attain its ambitious goal, he said the Congress needs to pass this tax reform package that is designed to raise an additional P718 billion for education, P139 billion for health, P267 billion for social protection, welfare, and employment, and P1.73 trillion for urban and rural infrastructure.
Hence, he said, Package One of the CTRP must be approved by the two chambers of the Congress in its entirety because the approval of just its highly-popular component— the sizable cuts in the personal income tax (PIT) rates—would lead to revenue shortfalls and an unmanageable deficit spending that would have dire consequences for the country.
Absent the revenue-enhancing proposals under the CTRP such as the adjusted taxes on fuel and automobiles, he said “the Philippines will most possibly suffer a credit rating downgrade as the government will be forced to rely on borrowings to manage the deficit, which means P30 billion in additional debt costs; consumers will have to absorb the consequences by having to cope with a permanent P2-depreciation of the local currency against the dollar, along with a two-percent increase in interest rates; and public funds for classrooms, health centers and rural roads will be in short supply.”
“If we fail to pass the revenue-enhancement measures, we will lose the growth momentum that took us years to build. We will face the specter of large budget deficits and move closer to a debt crisis,” he said.
“Growth,” he said, “would not only be slower but exclusive, with the rich continuing to corner the wealth created and the poor kept out of the national economic mainstream.”
“The comprehensive tax reform package has been endorsed by the business associations, the foreign chambers of commerce, our multilateral development partners, the former secretaries and undersecretaries of finance and many other civil society groups,” he said.
“This is the tax package that will enable us to reshape our economic growth to make it more inclusive,” he said.
“It is the tax reform package that will bring us to the irreversible path towards being a high-income economy in one generation and bring down our poverty rate to a mere 14 percent by 2022,” he added.
“Unless the tax reform package is passed, the government’s goal of reducing poverty rates from the current 21.6 percent to 14 percent to bring the Philippines at par with Thailand and China in terms of per-capita gross national income by 2022 will flounder,” he said.
“In short, the vision of achieving prosperous country status with zero poverty by 2040 will not be achieved,” he said.