The government’s infrastructure program has further gained ground with the approval on Tuesday of the tax-reform bill and the 2018 national budget, both of which are intended to accelerate the Duterte administration’s “Build, Build, Build” program.
After months of deliberation, Republic Act (RA) 10963, or the Tax Reform for Acceleratiotn and Inclusion (TRAIN), was enacted into law by the President. The first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP) was signed along with the General Appropriations Act (GAA) for 2018.
Presidential Spokesman Harry L. Roque Jr. said the most important provision of the TRAIN is that it will exempt workers with a gross annual income of P250,000 and below from paying personal-income tax (PIT).
“Of course, the most important provision is that it will spare 99 percent of our [working] population from the payment of income taxes because those earning not more than P250,000 per annum will now be tax exempt,” he said in a news briefing.
Minimum-wage earners, who receive an average of P12,000 monthly, will continue to be exempted from paying PIT under the TRAIN. It will also implement a simplified tax system for micro and small taxpayers at 8 percent on gross sales in replacement of income and percentage tax.
Finance Secretary Carlos G. Dominguez III said the Department of Finance’s preliminary computation indicates the government would be giving “almost P150 billion” back to the people in the form of tax relief under the TRAIN, since it provides for the slashing of PIT rates which will increase the take-home pay of employees.
“I don’t think this ever happened before. Never in the past has the government given up revenues. We have here almost P150 billion, first time ever. First time ever we did a tax reform without anybody forcing us to do it. So I am saying that we are making history,” Dominguez said.
The TRAIN provides for PIT exemptions for the first P250,000 of taxable income, along with other significant PIT cuts for other tax brackets, which also provides Filipino taxpayers with “much-needed relief” after 20 years of no adjustment on the rates.
“I think it’s a sign of maturity for our country. It is also the first of five packages that will once and for all start fixing the structural problems of the tax system that has become unfair, complex and inefficient,” he added.
The National Economic and Development Authority said the CTRP will boost the country’s GDP by as much as 1.1 percent by 2022.
In a statement, Socioeconomic Planning Secretary Ernesto M. Pernia said the CTRP will boost real GDP level by 0.5 to 1.1 percent by year 2022, which will help in attaining its medium-term growth targets.
“The implementation of TRAIN is essential as it will increase the spending capacity of the average working Filipino, boost revenue-to-GDP ratio, and fund government’s infrastructure and human capital investment program,” Pernia said.
Higher taxes
The TRAIN will also impose excise tax on oil of up to P6 over the next three years: P1 in 2018, P2 in 2019 and P3 in 2020. On the other hand, essential petroleum products, such as diesel, kerosene and LPG, will be slapped with lower rates.
Automobile excise tax is placed at 4 percent for vehicles up to P600,000; 10 percent for over P600,000 to P1 million; 20 percent for over P1 million to P4 million; and 50 percent for hybrid vehicles. No excise tax will be imposed on electric-powered cars.
The TRAIN will also slap a P6-per-liter tax on drinks containing caloric and noncaloric sweetener and a P12-per-liter tax on beverages with high-fructose corn syrup.
Essential sugar-sweetened beverages (SSB), such as 3-in-1 coffee and milk, will be exempt.
Estate and donors’ taxes are fixed at 6 percent under the TRAIN. The value-added tax (VAT) base was also modified, repealing 54 special laws in the process, mostly on VAT exemptions deemed as nonessential.
Medicines for chronic diseases, such as diabetes, high cholesterol and hypertension, are exempted from VAT. The TRAIN will also continue to exempt purchases of senior citizens and persons with disability from VAT.
The controversial increase in excise tax on coal will also push through at P50, P100 and P150 for 2018, 2019 and 2020, respectively, and will cover both domestic and imported coal. Roque assured the public that “this will translate only to a very small increase in terms of price of electricity.” Cosmetic procedures will be slapped with 5-percent tax. Excise tax on mining was also doubled under the TRAIN to 4 percent from 2 percent.
Gerard H. Brimo, chairman of the Board of Trustees of the Chamber of Mines of the Philippines , said mining firms can absorb the increase in tax if the price of metals in the world market continues to improve.
Brimo, the President and CEO of Nickel Asia Corp., the country’s largest nickel producer and exporter, described as “acceptable” the proposal to double the taxation in mining to 4 percent of the gross income from the current 2-percent excise tax.
But he noted that the price of metals remains unstable. In his assessment, Brimo said prices are “a little bit better” this year compared to last year. The price of metal next year, he said, will determine whether mining companies can cope with the increase in taxes.
“No one wants to pay more taxes, of course. It is a reality. Our taxes are being doubled. Four percent plus 5-percent royalty, and if you happen to be operating within an ancestral domain, you will be paying another 1 percent [to indigenous peoples] and if the LGU is charging higher business permits, that will be an additional 1 percent so all-in-all, that will be 11 percent of gross income,” he said.
“We can say after this move, the industry pays its fair share. We have done our computation, we are a bit on the expensive side now. So be it, we accept it, let’s hope for prices to improve. Hopefully, we can deal with the moratorium on new mining permits,” he said. The TRAIN is expected to deliver P121.2 billion, or 0.7 percent of the country’s total GDP, to government coffers. A hefty chunk of the TRAIN’s revenue is allocated to the government’s infrastructure program, dubbed as the “Build, Build, Build.”
Roque said 70 percent of the TRAIN’s revenue will be directed to public infrastructure, while the other 30 percent will be allotted to social services. He added a portion of it will be spent on mitigating measures for the poorest Filipinos that will suffer from the tax hikes.
Under the TRAIN, the poorest 10 million households will receive P200 monthly in 2018 and P300 monthly in 2019 and 2020. According to Roque, this is “to cushion the impact of indirect taxes” imposed by the TRAIN.
2018 budget
Duterte also signed into law the P3.767-trillion General Appropriations Act of 2018. The national budget for next year is 12.4 percent higher than the purse for this year and is equivalent to 21.6 percent of the country’s GDP.
Infrastructure and capital outlays will receive 25.4 percent, or P956 billion, of the 2018 budget, and is just 4 percent behind the 29.4-percent allocation, or P1.108.7 trillion, for personnel services.
Under Duterte, the government is hell-bent on completing big-ticket public infrastructure, such as the North Luzon Expressway Harbor Link, Luzon Spine Expressway, Philippine National Railway North and South Rails and the Metro Manila Subway. In order to achieve this ambitious goal, the government intends to accelerate infrastructure-to-GDP ratio to 7.4 percent, which will amount to as much as P9 trillion by the end of Duterte’s term in 2022.
The government has allocated P3.6 trillion for its infrastructure program over the next three years. Most of the public infrastructure listed under the “Build, Build, Build” are situated in Metro Manila and other major urban centers.