Congress must ensure the Duterte administration’s Comprehensive Tax Reform Program (CTRP) balances the need for sizable cuts in personal income-tax (PIT) rates and higher tax collections to fund the government’s public investment program for inclusive growth, according to the Department of Finance (DOF).
The DOF issued the statement after the approval of a substitute measure by the House Ways and Means Committee, which consolidated House Bill 4774 with 52 other bills.
The substitute bill contained moderate modifications to the original measure, including expanding the earmarking of 40 percent of the proceeds from the revenue-generating measures for social-protection programs from one year to three years.
Finance Undersecretary Karl Kendrick T. Chua said the absence of revenue-generating measures that would offset the projected foregone revenues from the PIT reductions would adversely affect the country’s poorest families.
The poor would end up as the ultimate losers, given that the continued scarcity of public funds would constrain the government from spending big on education, health care and social protection to help lift the bottom 50 percent of the population from poverty, Chua said.
Based on DOF preliminary estimates, should the first CTRP package pass with the main measure being the reduction of PIT rates, revenues would reach P16.8 billion. But if complementary measures are added, like imposing tax rates on sugar-sweetened beverages, revenues will increase to P82.7 billion.
For 2019, the DOF preliminary estimates for revenues coming from the substitute bill would amount to P83.8 billion if implemented by 2018 as is. With complementary measures, the amount would grow to P147.5 billion.
Chua said Internal Revenue Allotments for local government units will collapse in three years if only the revenue-eroding cuts in PIT rates will pass in Congress.
“If we only pass the personal income-tax reductions, then we may run the risk of only that being implemented. And, I think, that is not going to be progressive at all, because those paying taxes today are those who are richer, above-minimum wage and they, in turn, are the ones who will benefit, while we don’t [have any program] for the non-taxpayers, the minimum-wage earners,” Chua said.
Package One of the CTRP, as contained in HB 4774, aims to lower PIT rates and, at the same time, adjust excise taxes on oil and automobiles and, broaden the value-added tax base, while retaining exemptions for senior and persons with disabilities, among other measures.
Albay Rep. Joey S. Salceda, who is the senior vice chairman of the Ways and Means Committee, agreed with Chua that passing only the PIT cuts would be detrimental to the poor.
“If you just pass the personal income-tax [cuts] how about the plight of the bottom 50 percent, the poor who have no income? In terms of balance, what about the lowest 50 percent of the population?” Salceda asked.
Passing only the PIT reforms will lead to a credit-rating downgrade of below investment grade, which may lead to a spike in interest rates and a permanent P2 depreciation against the dollar, according to Chua.
A credit-rating downgrade could lead to an increase in borrowing of up to P30 billion for the government and up to P100 billion for the private sector.