THE House of Representatives on Monday quickly approved on third and final reading the three remaining tax packages of the Duterte administration’s Comprehensive Tax Reform Program (CTRP).
This, after the lower chamber approved House Bill 8677 to increase the excise taxes on tobacco, HB 8618 to raise excise tax on alcohol products and HB 8645, or the “Passive Income and Financial Intermediary Taxation Act of 2019,” in less than a month since they were endorsed to the plenary.
With 190 positive and seven negative votes, the lower chamber approved House Bill 8645, or the “Passive Income and Financial Intermediary Taxation Act of 2019,” seeking to make taxation of the sector simpler, fairer and more efficient.
Earlier, Speaker Gloria Macapagal-Arroyo vowed to pass the legislative agenda of President Duterte. These measures will be transmitted to the Senate for its own deliberations.
HB 8677, tagged as part of the Package 2 Plus of the CTRP, will raise the current tax of P30 per pack of cigarettes to P37.50 beginning July 2019. It will increase further to P40 in July 2020, P42.50 in July 2021, and P45 in July 2022.
Thereafter, the rate shall be raised 4 percent every July annually.
Voting 187-7-1, lawmakers approved the measure, which seeks to amend Republic Act 10351 or the sin tax reform Law enacted in 2012.
The bill also seeks to address smoking prevalence and its negative consequences on both the health of the population and the consequent cost on the country’s economy.
For her part, Deputy Speaker Sharon S. Garin said the government is expecting P2.7 billion in revenue from the passage of this additional tax for tobacco products.
Funding for health
Main authors of the bills said the revenue from excise tax on tobacco, as well as alcohol products, will fund the proposed Universal Health Care (UHC) Act.
The UHC bill is currently going through the bicameral conference committee, and is expected to be signed into law by the end of the year.
According to the Department of Health (DOH), around P164 billion in incremental funds still needs to be generated to ensure its proper implementation.
The bill said 15 percent of what will be collected shall be allocated for tobacco farmers and 85 percent shall be used to fund the UHC.
The rates come below P60 per pack, which the DOH and Department of Finance (DOF) projected will push the prices of cigarettes to the point where it can effectively curb smoking prevalence and supplement the funds for the UHC.
Alcohol
Also approved on third and final reading with a 189-7 vote is a measure seeking to raise the excise tax on alcohol products, or HB 8618.
The bill seeks to increase the excise tax imposed on distilled spirits by P6.60, compared to what is implemented under Republic Act (RA) 10351 or excise tax reform law on alcohol and tobacco.
Starting January 2019, an ad valorem rate of 22 percent, including specific tax rates per proof liter of P30, P35, P40 and P45 from 2019 to 2022 will be imposed on distilled spirits; and it will be increased by 7 percent annually starting 2023.
Currently, RA 10351 is imposing distilled spirits a P22.40 specific tax and an ad valorem tax of 20 percent.
The lower chamber also approved a shift to a unitary rate of P650 plus ad valorem of 15 percent for sparkling wines, compared to the two-tiered system under RA 10351. It will be increased by 7 percent annually starting 2023.
Meanwhile, the tax on still and carbonated wines with lower than 14-percent alcohol content was increased by P2.10 (from P37.90 to P40), while those with an alcohol content higher than 14 percent saw a P4.10 increase effective January 2019. It will be increased by 7 percent every year thereafter. Also, the approved tax rate on fermented liquors was P28—P2.60 higher than the P25.40 tax rate mandated by RA 10351. It will be increased by 7 percent every year thereafter.
Like excise tax on tobacco, revenue from additional taxes from alcohol will fund the proposed UHC Act.
Package 4
The House of Representatives also on Monday approved on third and final reading the fourth package of the Duterte administration’s CTRP.
With 190 positive and seven negative votes, the lower chamber approved HB 8645 or the “Passive Income and Financial Intermediary Taxation Act of 2019” seeking to make taxation of the sector simpler, fairer and more efficient.
It also reviews the taxes imposed on financial intermediaries and the products they offer: on savings and investments; and debt and equity instruments.
Under HB 8645, House Committee on Ways and Means Chairman Estrellita Suansing of Nueva Ecija said interests, dividends and capital gains will be levied with a unified income tax rate of 15 percent. She said preneed, pension, and life insurance will be levied a uniform 2 percent. Various nuisance documentary stamp taxes will be removed. As a result, passive income rates will be reduced by half.
Ultimately, the poor and the middle class will enjoy a net gain, the lawmaker said.
“Tax on savings will go down from 20 percent to 15 percent, providing a tax savings of P50 to P113.50 for savings and investments ranging from P35,000 to P100,000. Meanwhile, the rich who invest in dividends will pay 5 percent more in taxes. However, the losses will only be minimal, at less than P200 per P55,000,” she added.
Suansing also said the measure underscores the significance of the financial sector in the long-term growth of the national economy, saying these intend to implement capital income and financial intermediation to encourage savings, as well as develop and deepen the capital markets.
According to the DOF, Package 4 aims to harmonize the country’s current 80 financial tax rates to 41 in efforts to deepen the capital markets, among others.
It will harmonize financial tax rates from the current 80 to at least 41 while repealing 32 of the 41 special laws that have been granting special rates and exemptions. The DOF also said Package 4 is revenue-neutral, with the objective of reforming the country’s taxation system, in turn helping to deepen the local capital market.
The documentary stamp tax rate’s reduction is seen to benefit the nonlife insurance industry, among others, with the move seen to help promote more insurance as the country faces more disasters.
According to Suansing, the measure seeks to simplify such complexity and provide neutrality in the tax treatment across financial institutions and financial instruments by reducing the number of rates of withholding taxes, removing the distinctions, special rates and unnecessary exemptions.
“Moreover, the current tax system provides certain concessions or different tax treatments for certain transactions of some types of financial institutions compared to similar transactions of other FIs. For instance, there are exemptions allowed on long-term investments, bank deposits, individual trust funds and investment management accounts in favor of resident individuals. Such exemptions do not cover long-term savings offered by other FIs, such as life insurance, preneed/pension plans, investment houses, among others,” she said.
“Anent classification between different FIs, this has caused unequal treatment, considering that some are subject to gross receipts tax, while some are subject to premium tax, while other are subject to the value-added tax. For instance, banks, quasi-banks and other FIs are subject to GRT, while life insurance companies are subject to premium tax, and lending investors, property insurers, preneed companies, health maintenance organizations and money remitters are subject to VAT,” she added.