Tax reforms in early part of Duterte administration

The tax reforms that eluded the nation during the term of former President Benigno S. Aquino III are expected to be realized within the early part of the Duterte administration, according to the Tax Management Association of the Philippines (TMAP), which has spearheaded the campaign to reform the tax system.

TMAP said in a statement that Mr. Duterte’s announced tax-system reforms were the same changes that tax-management practitioners have espoused.

”With the clear pronouncements of the President, who is currently enjoying overwhelming support in both houses of Congress, we don’t see why the passage of the comprehensive tax-reform measure will not materialize during the early part of his term,” the statement said.

President Duterte, in his first State-of-the-Nation-Address (Sona), said his administration “will pursue tax reforms toward a simpler, and more equitable, and more efficient tax system that can foster investment and job creation.”

“We will lower personal and corporate income tax rates and relax the bank secrecy laws,” he said.

TMAP said easing the bank-secrecy law and improving the tax-system efficiency “are reforms directed to increase voluntary compliance by taxpayers, increase the tax base and consequently increase tax collection.”

”With the lowering of the income-tax rates, which will result in revenue erosion, the need to significantly increase the tax base and improve voluntary compliance cannot be over-emphasized,” it said. ”This is where all of us can help push for tax reform by having a tax-conscious, vigilant and involved mindset.”

TMAP, during the presidential campaign, polled the candidates about their tax policy. The results of the survey showed that Mr. Duterte was committed to pursue genuine comprehensive tax reforms through, among other things, the adjustment of income-tax brackets, the reduction of corporate and income tax rates, and simplifying tax compliance and exempting marginal income earners from tax and administrative requirements.

Finance Secretary Carlos Dominguez III, earlier said there is a need to reform the tax system to make it more realistic.

He suggested that tax rates be pegged against inflation since the current tax rates in the country were created in 1997 and have not been adjusted since.

Several tax-reform bills were submitted in the 16th Congress and these include a cut on tax rates and adjustments on the brackets.

But the Aquino administration did not favor any reduction in the tax rates, saying it would be a drain on government revenues; the projected tax loss from the tax reduction would reach about P29 billion, it was said then.

Dominguez said the proposed tax reform included income-tax exemption for all wage earners who make less than P1 million in annual income.

The revenue loss from the measure would be compensated by increasing to 14 percent the 12-percent value added tax (VAT).

An economist of ING Bank Manila forecast that the proposed tax reforms could push the inflation rate higher in the latter part of 2016.

“The additional liquidity from generally reduced tax payments is seen to result in inflationary pressures,” ING Bank Manila senior economist Joey Cuyegkeng said.

“The current M3 (amount of money in circulation) growth is appropriate to allow economic growth while keeping inflation rates contained,” he added.

”Additional liquidity coming from regulatory easing would likely become a key focus later this year or early next year,” he said, referring to the projected adjustment in banks’ reserve requirement as excess liquidity in the system remains.

“BSP would likely need to balance tax reform-induced inflation pressures (and likely upward revisions of inflation expectations) with liquidity requirement for economic growth,” he added.

In the first half this year, inflation averaged at 1.3 percent, still below the government’s 2-percent to 4-percent target for 2015-18.

However, the inflation rate has been rising with the June level at 1.9 percent from month-ago’s 1.6 percent due to faster inflation in heavily weighted food and non-alcoholic beverages index.