Senate gives conditional support for ‘tough plans’

Two controversial measures that came out of the two-day Davao City summit among businessmen and the Duterte economic team were a proposal to raise the value added tax (VAT) from 12 percent to at most 15 percent, and to provide President-elect Rodrigo Duterte with emergency powers—for two years, at most— to address the traffic crisis in Metro Manila. 

The twin measures immediately generated debates in Congress, with the senators eventually giving unexpected support for both, although conditionally for the more contentious extra powers for Duterte.

Sen. Juan Edgardo “Sonny” Angara, who was a proponent of the income-tax reform measures, said he would pursue these after an apparent support from the economic team of Duterte that included in the 10-point economic agenda the implementation of a progressive tax system and more effective tax collection and indexation of taxes to inflation.

Angara noted that incoming Finance Secretary Carlos Dominguez gave assurances during the business summit that the new administration would definitely review the tax system by initially updating the income-tax brackets and eventually, lowering corporate and individual tax rates.

The tax reform package will be submitted to Congress sometime in September, Dominguez said.

“We’re happy that the sentiments of our workers who feel that they are being excessively taxed, are now being heard. We’ve been pushing for income-tax reform since we were elected in 2013 when we saw how outdated, unfair and oppressive our current system of taxation is,” Angara, chairman of the Senate ways and means committee, said.

But the proposal may be in for rough sailing at the House of Representatives.

Speaker Feliciano Belmonte Jr. said an increase in the VAT should be a last option to recoup revenues from a lower income tax and the Duterte economic team should first look into how they could increase collection without creating any additional tax.

“I will not support it. The VAT is being paid by all, including the poor. I think we need some overhauling,” Belmonte said.

The speaker added that he would personally block the idea unless the economic team could justify the need for another round of tax increase.

“Many Filipinos cannot afford even the current rates and for them to suffer another VAT increase on all goods and services is just not right,” Belmonte said.

Asked if he had any suggestion to resolve the matter, Belmonte said, “The incoming budget secretary is a veteran; he and his team should learn to use their imagination and expertise. Maybe their experience in governance can guide them to look for avenues other than increasing VAT.”

Angara has been at the forefront of efforts seeking to legislate the lowering of income tax during the recently concluded 16th Congress.

His initial proposal, Senate Bill 2149, which was filed in February 2014, aims to lower income-tax rates across-the-board, reducing the highest tax rate from 32 to 25 percent, and to compress the tax brackets from seven to five; subsequently in November of last year, he filed SB 3003 that seeks to adjust the levels of taxable income to take into account inflation.

A quid-pro-quo for the proposed cuts in income tax would be the increase in the VAT, which, under the proposal of incoming Budget Secretary Ben Diokno, would be from the current 12 percent to 15 percent to cover the revenue losses from the income-tax cuts.

Socioeconomic Planning Secretary-designate Ernesto Pernia said that to implement Duterte’s income-tax reduction plan, the VAT would have to be raised to compensate lost revenues.

“When there’s higher disposable income among consumers, they tend to spend more, too. That would result in a higher VAT revenue,” Pernia said.

“The policy of the new government is to reduce tax evasion, reduce corruption and reduce smuggling,” he added.

Duterte’s campaign promise was to exempt workers with a monthly pay of P25,000 or less from paying income taxes.

Given the pronouncements made by the economic managers, Angara expressed hope his bills would finally be passed.

“Economists and experts have all agreed there is an urgent need to change the country’s current tax system. I’m looking forward to the tax-reform package that will be submitted to us. We’ll make sure that Congress passes a version that would ease the tax burden of our workers and at the same time, would not pose a risk to the country’s fiscal health but would help improve revenue collection, attract foreign direct investment and boost job generation in the country,” Angara said.

Angara added that he would back Duterte’s push for lower corporate taxes.

Angara also cited a recent study by Dr. Stella Quimbo of the UP School of Economics showing that while a decrease in the corporate-income tax rate would initially lead to lower revenue collections, it would eventually be offset by a projected increase in investments.

Dominguez also said they would review the long list of VAT-exemptions to compensate for expected revenue loss from lower taxes.

Senators are also willing to grant Duterte emergency powers to address the traffic crisis in Metro Manila but said they would make sure this would have parameters and safeguard measures.

“I am open to the grant of emergency powers. But what I would like to see are the specific powers that are being requested and the safeguards,” Senate President Franklin Drilon said.

Senators Vicente Sotto III, Grace Poe and Sherwin Gatchalian indicated their 4conditional support for the proposal.