Eco Team Guarantees Protection For Poor Families Under Comprehensive Tax Reform Program

President Duterte’s economic managers have formally guaranteed highly targeted, direct and indirect subsidies plus other social protection initiatives to shield the poor and low-income households from the impact of the proposed adjustments in excise fuel taxes under the initial comprehensive tax reform program that the government had submitted to the Congress for its approval.

In a joint statement, Secretaries Carlos Dominguez III of the Department of Finance (DOF), Benjamin Diokno of the Department of Budget and Management (DBM), and Ernesto Pernia, the director general of the National Economic and Development Authority (NEDA), said these “highly targeted transfer programs” would help cushion the impact of the proposed indexing to inflation of the excise taxes on oil products on “the poorest 50 percent of the population.”

Adjusting oil excise taxes on diesel, gasoline and other petroleum products is among the proposals under the first tax reform package submitted by the Duterte administration to Congress last Sept. 26, which also includes the lowering of personal income tax (PIT) rates, broadening the value added tax (VAT) base, and restructuring the excise tax onautomobiles, ​except for trucks, cargo vans, jeepneys, jeep substitutes, single chassis engines and special purpose vehicles.

“To mitigate the impact of higher oil prices on low income and vulnerable households, we will use highly targeted transfer programs to ensure that the poorest 50 percent of the population is fully protected from the increase in oil excises, while the next 30 percent, which covers the commuting class, will be protected through indirect subsidies to public utility vehicles,” Dominguez​, Diokno and Pernia said in their joint statement.

“Only when tax reform and targeted transfers are pursued together can we ensure that the resulting policy reform will be truly inclusive and equitable,” ​they​ said.

​Moreover, they pointed out that, ​“Increasing excise on oil products is highly progressive as the top 2 million households, which comprise 10 percent of the total number of households in the country, consume almost 60 percent of oil products, while the top 200,000 households or 1 percent of total, consume some 20 percent of oil products​.”​

​According to Dominguez, the government’s planned reforms in tax policy and administration, aims “to achieve a more efficient, equitable, and simpler tax system characterized by lower rates and broader base,” that will, in turn, “encourage investment, job creation, and poverty reduction.”

​Dominguez said that,​“The priority infrastructure, education, and health investments funded through tax reform will enable the country to lift 10 million Filipinos out of poverty by 2022 and eradicate extreme poverty by 2040​.​” Dominguez said.

The near-term goal of the Duterte administration’s tax reform plan, Dominguez said, is to raise P600 billion, which is about 3 percent of the Gross Domestic Product (GDP), by 2019 to help fund the 10-point socioeconomic agenda of the Duterte administration for sustained high—and inclusive—growth, which is anchored on accelerated spending on infrastructure, human capital and social protection for vulnerable sectors.

Of this amount, P400 billion (2 percent of GDP) will come from tax policy reforms and another P200 billion (1 percent of GDP) from reforms in tax administration.

Dominguez said reforming the tax system and protecting the country’s vulnerable sectors should go hand​-​in​-​hand in realizing President Duterte’s electoral mandate of making the benefits of economic growth felt by all Filipinos.

The adjustments in oil excise taxes and later indexing these to inflation, the expansion of the VAT base and the restructuring of the excise tax on automobiles are measures that would offset the revenue losses arising from the reduction of personal income tax rates.

He pointed out that adjusting oil excise taxes would remove the subsidy on fuel that is actually enjoyed mostly by the rich, and transfer this instead in the form of highly targeted assistance to low-income households and other vulnerable sectors.

“The incremental revenues will be used to fund the massive infrastructure needs of the country and the programs to develop our human capital and provide social protection for the poor,” he added.

Dominguez said the general rule under the Duterte administration is that the rich would have to pay more while poor and low-income groups would pay less or none at all.

He said the tax plan would lay the groundwork for raising an extra P1 trillion yearly for sustained higher spending that will meet the Duterte administration’s vision of transforming the Philippines into a high middle-income country, where Thailand and China are today, by 2022, and to a high income country, where Malaysia and Korea are today, by 2040.

The macroeconomic assumptions under the 2017 National Expenditure Program show that prices of crude oil in the world market will stay within the US$40-60 range in 2018 and 2019.

Earlier, Finance Undersecretary Karl Kendrick Chua said a main feature of the first reform package submitted to the Congress last month is that the personal income cuts would be cut from 32 percent to 25 percent that will in effect exempt 4.7-M taxpayers, which already include the current 1.7 million minimum wage earners, from paying income taxes. Another 450,000 taxpayers would pay only 20 percent of the excess of P250,000 of their net taxable income.

Entry level workers above the minimum wage earning about P13,000 a month would be covered by the tax exemptions, along with those earning not more than P20,000 a month. (DOF)