The economic managers of the Duterte administration have 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 taxes on fuel.
The proposal is under the initial comprehensive tax-reform program that was submitted to Congress.
In a joint statement, Secretaries Carlos G. Dominguez III of the Department of Finance and Benjamin E. Diokno of the Department of Budget and Management, and Ernesto M. Pernia, the director general of the National Economic and Development Authority, said the highly targeted transfer programs will 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.”
The proposed tax-reform package 1 includes adjustments in excise taxes on diesel, gasoline and other petroleum products.
The first tax package also includes the lowering of personal income-tax (PIT) rates, broadening the value-added tax (VAT) base and restructuring of the excise tax on automobiles, except for trucks, cargo vans, jeepneys, jeep substitutes, single-chassis engines and vehicles for special purposes.
“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,” the joint statement said. They pointed out that increasing excise tax on oil products is highly progressive, as the top 2 million households, comprising 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 households, consume some 20 percent of oil products.
“Only when tax reform and targeted transfers are pursued together can we ensure that the resulting policy reform will be truly inclusive and equitable,” the economic managers added.
According to Dominguez, the government’s proposed reforms in tax policy and administration aims to achieve more efficient, equitable and simpler tax system characterized by lower rates and broader base that will encourage investment, job creation and poverty reduction.
Dominguez also explained that priority infrastructure, education and health investments that will be funded through tax reform will enable the country to lift 10 million Filipinos out of poverty by 2022 and eradicate extreme poverty by 2040.
The near-term goal of the Duterte administration’s tax-reform plan is to raise P600 billion, which is about 3 percent of the country’s GDP, by 2019 to help fund it 10-point socioeconomic agenda for sustained inclusive growth, which is anchored on accelerated spending on infrastructure, human capital and social protection for vulnerable sectors.
Of the P600 billion, P400 billion, or 2 percent, of GDP will come from tax-policy reforms and another P200 billion, or 1 percent, of GDP from reforms in tax administration.
The finance chief added that 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 PIT 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,” Dominguez said.
The macroeconomic assumptions under the 2017 National Expenditure Program show that prices of crude oil in the world market will stay within the $40-to-$60 range in 2018 and 2019.