The 17th Congress will have its hands full, as the Duterte administration seeks to have all five tranches of the tax-reform package enacted before the mid-term elections in 2019.
This was disclosed by Finance Undersecretary Karl Kendrick T. Chua at the BM Coffee Club forum on Tuesday with the ALC Media Group and Action for Economic Reforms at the Sandari Batulao office in Makati City.
Chua said they are confident that the first package of the Comprehensive Tax Reform Program (CTRP), or the Tax Reform for Acceleration and Inclusion (TRAIN), will be approved by Congress and signed by the President by October, giving them enough time to work on the accompanying implementing rules and regulations for actual implementation by January 1, 2018.
Chua said that, since the Senate Ways and Means Committee is only to start its official deliberations on the first package of the CTRP on July 24, it is unlikely that the passage of the TRAIN will still meet the original July target.
“The reality is it will not happen, because the Senate, you know the House approved it on third and final reading on May 31, and the Senate will officially take it on July 24. But the Senate already had nine hearings. So we expect this to move fast. So the target is to have the Senate and the bicam [bicameral committee] and the President sign by October, so we have time to prepare the IRR [implementing rules and regulations] for publication. I think it is almost certain that we will have this tax reform implemented on January 1. The President certified it already, so everyone is taking it with a sense of urgency,” Chua said.
Before adjourning in May, the lower chamber approved House Bill 5636, or TRAIN, which seeks to lower personal income-tax rates, expand the value-added tax base, adjust excise taxes on petroleum and automobiles, impose excise tax on sugar-sweetened beverages and ease the rates of estate and donor’s taxes.
The bill, which was certified as urgent by the Palace, is now pending before the Senate Ways and Means Committee, headed by Sen. Juan Edgardo M. Angara.
The DOF, Chua said, will be submitting the CTRP’s second package—focused on decreasing corporate tax rates from 30 percent to 25 percent, while rationalizing fiscal incentives—by October.
“[We will review] fiscal incentives because some of them have been there for 40 to 50 years, when, in fact, we’re not sure if these sectors or industries are contributing to the economy,” Chua added.
The remaining three tranches will be submitted in the fourth quarter of the year or early 2018.
“The tax packages 2 to 5, we are working on them as we speak. We want all the tax reforms to be approved before 2019 because that is election year, and we want to not have any leaks; so 2019,” he said. “We will use the remainder of next year to finish all the hearings so that by December 2018, we have the whole program and five packages ready.”
The DOF said the government needs an additional P2.2 trillion in capital spending up to 2022 for the Duterte administration’s infrastructure, education, health and social-welfare programs. The funding will be raised through sustainable borrowings, budget reforms, tax-and customs-administration reform and tax-policy reform.
The DOF’s goal, Chua said, is to generate P366 billion annually from the five tax-reform packages.
“Package 1 covers around half of what we need, because Packages 2 to 5 have lesser revenue; they are more about fixing inherent problems. So the estimate we have for Package 1, the DOF estimate, is around P157 billion per year. House version that was passed is P133 billion. So our challenge is to make sure the Senate listens and pass the DOF version. Packages 2 to 5 will contribute the balance, which we will present in the coming months through December,” Chua said.
Package 3 of the DOF’s proposed CTRP tackles property taxation, with the goal of lowering the rate of donor’s and estate taxes, as well as the rate of transaction taxes on land. The offsetting measures include the rationalization of valuation of properties, meaning, increasing valuation closer to market prices.
The fourth package of the CTRP covers capital income taxation, which aims to reduce the taxes imposed on interest income earned on peso deposit and investments from 20 percent to 10 percent. Its offsetting measures include the harmonization of capital income-tax rates for dollar deposits and investments, dividends, equity and fixed income rates to 10 percent. It also includes increasing tax on stocks traded in the stock market from 0.5 percent to 1 percent on gross selling price.
The fifth package is composed mainly of offsetting measures, from taxing fatty foods, luxury items, mining operations, lottery and casinos, revisiting the taxes on tobacco and alcohol, and creating a carbon tax. “We are banking on the popularity of the President [for all these measures to be passed], that is important, and also a broad-based support from stakeholders. They both need to support each other,” he said.
Image credits: Nonie Reyes