THE government secured investment commitments, including so-called submarket loans worth at least $46 billion, in the inaugural year of President Duterte, the bulk of it coming from the country’s new-found ally China, and long-time trade and investment partner Japan.
The funds will go a long way in securing the outcome of an ambitious multilayer infrastructure buildup program that the Department of Finance (DOF) initially estimated will require mobilizing more or less P2.2 trillion over a six-year stretch.
Trade Secretary Ramon M. Lopez said the commitments aggregated $46 billion, including a hefty $24-billion package from China and the $9-billion combined investment and development aid package from Japan.
“Those numbers were being studied, explored and committed on presidential trips, including the official development assistance [ODA]” component, he clarified through a text message.
Malacañang officials highlight with pride the trade and investment component of each overseas presidential trip, and that the Department of Trade and Industry similarly touts its own haul after each trade and investment road show it completes on its own.
According to the DTI, Lopez has visited a total of 14 countries since stepping into office, including Asean-related visits required by his position as Asean economic minister this year.
To recall, government executives and industry pioneers visited China in large numbers last October in a bid to repair diplomatic ties severed as a consequence of the South China Sea row.
The $24 billion consisted of $15 billion allotted for incoming investment projects and a $9-billion credit line from the Bank of China. From the investment amount alone, Lopez estimated the generation of gainful employment for 2 million Filipinos over the next five years as the projects come on stream.
Priority infrastructure projects were earlier tagged for possible funding from the $9-billion credit line, including the Chico River Pump Irrigation project, the New Centennial Water Source-Kaliwa Dam Project and the North-South railway-South Line with a combined total project cost of $3.4 billion. The irrigation projects and the Kaliwa Dam projects have just been approved by the National Economic and Development Authority (Neda) this week.
The $46 billion excludes fresh investments that came in just this year, as the Manila-Beijing ties progressively improved. Undersecretary Ceferino S. Rodolfo, back in March, said five other Chinese companies—all first-time investors in the Philippines—submitted letters of intent to invest at least $10 billion in aviation, oil downstream, renewable energy, iron and steel, and shipbuilding/ship repair industries.
Dr. Alvin Ang, senior fellow of the Ateneo Eagle Watch, said the increased foreign borrowings to underwrite the public infrastructure buildup is a good move, but that the government has to ensure the loan terms are done clearly.
Not to be outdone, Japan, the Philippines’s longtime trading partner and top investor, similarly pledged $9 billion (¥1 trillion) in January. This was the biggest aid package Japan has ever extended to the Philippines, is also a combination of ODA loans and private sector investment spread out over five years.
The government similarly wooed far-flung Russia in its maiden year and was promptly rewarded by a $2.5-billion purchase order for agricultural produce.
In the most recent trip to Russia, Duterte signed an agreement worth $875 million.
Other trading partners within the region such as Indonesia, Vietnam, Cambodia, Thailand and Brunei Darussalam formed part of the DTI’s trade and investment promotion agenda during the Duterte administration’s inaugural year and reported a strengthening of relations in such areas as market access in agriculture, franchising and industry.
Fortifying relations within Asean remains a top priority for the DTI as it pushes for progress on the Asean+6 trade pact, the Regional Comprehensive Economic Partnership.
2010 vs 2016
In terms of approved investments, Lopez’s inaugural year appears to achieve parity with his predecessor.
According to data from the Board of Investment and the Philippine Statistics Authority, former Trade Secretary Gregory Domingo logged P437.37 billion worth of investment pledges from June 2010 to June 2011.
With a slight overlap, Lopez, from May 2016 up to the latest available data in April 2017, attracted P429.8 billion in investment pledges as well.
These figures include commitments secured by each Cabinet secretary’s respective predecessor.
Investment projects approved by the Philippine BOI grew 20.4 percent in 2016, reaching P441.8 billion from the P366.7 billion registered in 2015.
The value of registered projects in 2016 was second highest since 2000, next to the P466 billion registered in 2013. The 20.4-percent growth also exceeded the agency’s 7-percent growth target for 2016.
Over at the House of Representatives, President Duterte, when he first took the helm of government a year earlier, asked Congress to pass several laws that would help his administration “effect meaningful and genuine change”.
Such legislation would help secure the continued expansion of the $292-billion economy by underwriting the projects and programs needed to make it happen.
One of those measures is the Comprehensive Tax Reform Package (CTRP) composed of five tranches.
“I am committed to pursue a tax-reform package that will make our tax system equitable, efficient and competitive in the region to fund this budget for social justice, order and unity,” the President said in his 2017 budget message.
“The passage of this tax reform package addresses the weaknesses of the current tax structure and administration without compromising fiscal stability,” Duterte added.
At the heart of the proposed package is the proposed lowering of the income-tax rates for individuals and corporations from the present 32 percent and 30 percent, respectively, to just 25 percent.
“As a consequence, [this] should increase the take-home pay of individual workers in both the private and public sectors. It should also make the business climate in the country more favorable,” he said.
However, he warned against jeopardizing the government’s fiscal sustainability efforts by merely scaling back the income tax rates without mitigating offsetting measures.
“Thus, I ask Congress to pass all the measures that will form part of our tax-reform package. To compensate for the forgone revenue from the lowering income-tax rates, we propose to expand the value-added tax base and to index oil excise taxes to inflation. Fiscal incentives will also be rationalized,” he said.
“These tax measures will be complemented by administrative measures to curb tax leakages such as the improvement of the systems and capacity of the Bureau of Internal Revenue and Bureau of Customs,” he added.
The President also told lawmakers to help the government combat tax evasion by passing laws relaxing particular bank-secrecy provisions and amending the Anti-Money Laundering Act to make tax evasion a predicate crime to money laundering.
Speaker Pantaleon Alvarez said the passage of the President’s priority measures was made possible with the help of the supermajority in the 293-member House of Representatives.
Alvarez also vowed to help the Duterte administration attain its 10-point socioeconomic agenda to bring inclusivity and fairness to all Filipinos and lift them out of poverty.
President Duterte has put in place a 10-point socioeconomic agenda to fulfill his electoral mandate of ensuring peace and public safety and spreading the benefits of economic growth to all sectors across all regions.
During the recent BM Coffee Club forum with the ALC Media Group, Finance Undersecretary Karl Kendrick T. Chua said the government needs an additional P2.2 trillion in capital spending up to 2022 to help underwrite the government’s infrastructure, health, education and social programs.
Chua said half of the P2.2 trillion will come from tax-policy reforms while the remaining will come from sustainable borrowings, budget reforms and tax and customs administration recalibrations.
“Well, Package One covers around half of what we need. Because Packages two to five have lesser revenue, they’re more about fixing inherent problems,” he said.
The anticipated revenue under Package One is P133 billion based on House Bill (HB) 5636 approved by the lower chamber.
The CTRP consists of five packages with Package One seeking to lower personal income-tax rate. Package two tackles the reduction in the corporate tax from 30 percent to 25 percent while rationalizing fiscal incentives. Package three tackles property taxation and Package four tackles capital income taxation while Package five centers on the offsetting measures such as taxing fatty foods, luxury items, mining operations, lottery and casinos, revisiting the taxes on tobacco and alcohol, and creating a carbon tax.
The government goal is to generate P366 billion annually from all these tax measures.
Chua, meanwhile, is optimistic that the first package should pass muster at the Senate by October.
Chua said the DOF will submit the second package focused on scaling back the corporate tax rate from 30 percent to 25 percent while rationalizing the fiscal incentives menu, by October. The remaining packages from Package Three to Five is seen submitted in the fourth quarter or early 2018, with the goal of getting everything passed before the year 2019.
Under the 1987 Constitution, all tax measures originate from the House of Representatives.
In May the lower chamber approved HB 5636, or TRAIN, which seeks to lower personal income-tax rates, expand the value-added tax base, adjust excise taxes on petroleum and automobiles, impose excise tax on sugar-sweetened beverages and ease the rates of estate and donor’s taxes.
The bill, certified as urgent by the Palace, is now before the Senate Ways and Means Committee headed by Sen. Juan Edgardo M. Angara.
Under HB 5636, workers earning P250,000 are exempt from paying personal income tax, while the ultra-rich, or those earning more than P5 million, shall be taxed at 35 percent.
Also, an 8-percent tax, on the self-employed and professionals will be imposed on gross receipts in excess of P250,000.
The measure provides automatic adjustment of taxable income and their corresponding base every three years beginning 2022, based on a three-year cumulative consumer price index (CPI) inflation rate.
The tax-exempt threshold for 13th-month pay and other benefits is increased from P82,000 to P100,000.
The measure also eases the tax rate for estate and donor’s by imposing a unitary tax rate of just 6 percent. The bill includes a P6 tax on petroleum products that could cause the price of basic goods to rise. The P6-per-liter excise-tax increase will come in three tranches of P3, P2 and P1, respectively, in three years starting 2018.
It provides new schedules and brackets for auto excise tax in the package. The DOF is pushing for the excise the on vehicles to address traffic in the country.
Under the proposal, the excise tax will be implemented in two schedules. For the lower bracket, if the net manufacturer’s price/importer’s selling price is P600,000 the excise tax will be 3 percent by 2018 and it will increase to 4 percent by 2019.
For the higher bracket, if the net manufacturer’s price/importer’s selling price is over P3.1 million the excise will be P1,468,000 plus 90 percent of the value in excess of P3.1 million in 2018. For 2019 , if the net manufacturer’s price/importer’s selling price is over P3.1 the excise will be P1,824,000 plus 120 percent of the value in excess of P3.1 million.
Also, sugar-sweetened beverages shall be levied an excise tax of P10 per liter of volume capacity subject to a yearly 4 percent rate increase after effective date of January 1, 2018.
The lease on a residential unit with a monthly rental not exceeding P10,000 shall no longer be subjected to VAT exemptions.
The measure, however, provides for the conditional removal of VAT exemption for socialized housing.
Under the bill, the VAT-exempt status for socialized housing is conditioned on the establishment of a housing voucher system that benefits buyers of socialized housing.
Not included in the removal of VAT exemption are residential lots valued at P1.5 million and below as well as house and lot and other
residential dwellings valued at P2.5 million and below, which are immediately removed under this act. The bill also provides for a 20 percent final income tax on sweepstakes and lotto winnings.
The measure, meanwhile, proposes that for four years, an allocation of 40 percent of the yearly incremental revenues generated from the proposed petroleum excise tax shall be set aside as funds for social benefit programs and granting of fuel vouchers to qualified transport franchise holders.
The remaining yearly incremental revenues shall be allocated for infrastructure, health, education and social-protection expenditures. The bill said there shall, likewise, be allocation from sugar-sweetened beverage excise-tax revenue where 85 percent of the tax collection shall be allocated for government priority programs, while the remaining shall fund for the welfare and benefit of sugar planters/farmers.
Moreover, Package two of the DOF proposed CTRP is focused on slashing the corporate tax rate from 30 percent to 25 percent while rationalizing fiscal incentives. This includes limiting the VAT zero-rating to direct exporters, the provision of full VAT refund in cash to abolish the grant of tax credit certificates, and replacing the 5-percent gross income earned tax rate to a reduced corporate-income tax rate of 15 percent.
From the initial proposal submitted by the DOF in Congress last September, the revenues seen generated by Package two was estimated at P33.8 billion by 2019 and a loss of P34.8 billion.
The third package tackles property taxation, with the goal of the rate of donor’s and estate taxes to a flat 6 percent, as well as the rate of transaction taxes on land. The offsetting measures include the rationalization of valuation of properties, meaning increasing valuation closer to market prices.
The estimated revenues from the third package amounts to P43.5 billion and a loss of P3.5 billion. Package four focuses on capital income taxation, which aims to reduce the taxes imposed on interest income earned on peso deposit and investments from 20 percent to 10 percent. Its offsetting measures include the harmonization of capital income-tax rates for dollar deposits and investments, dividends, equity and fixed income rates to 10 percent. And it also includes increasing tax on stocks traded in the stock market from 0.5 percent to 1 percent on its gross selling price.
Under the initial proposal of the DOF, an estimated P1 billion in losses will stem from this package with no gains.
While the fifth package is composed mainly of offsetting measures, from taxing fatty foods, luxury items, mining operations, lottery and casinos, revisiting the taxes on tobacco and alcohol, and creating a carbon tax.
An estimated revenue gain of P129.4 billion will be coming from this measure, and no losses.
The DOF’s Chua said the growth in revenues under the CTRP will not be a fixed figure since the economy grows on a daily basis. A 10-percent to 15-percent growth in revenues is seen yearly, and should funds still be needed to propel its socioeconomic program, the government will fill in the gaps with official development assistance (ODA) and borrowings in terms of securities.
Accomplishment
The 17th Congress’s first regular session ended in May with the passage of several economic and sociopolitical measures.
Data from the House Committee on Rules showed that, since the 17th Congress convened on July 25, 2016, the House processed a total of 1,247 measures in just 97 session days, or an average of 13 measures processed per session day.
The House also managed to approve a total of 295 measures broken down as follows: enacted into law, four; approved on third reading, 194; approved on second reading, 13; adopted resolutions, 67; ratified bicameral reports, six; adopted Senate versions/provisions, one; and concurred with Senate amendments, four.
Of 194 bills approved on third and final reading, 53 are national bills, 140 are local bills and one Joint Resolution, HJR 10, which is “Increasing the Monthly Pension of Social Security System Pensioners under
The Social Security Act of 1997
A total of 6,908 House Bills and House Resolutions have been filed since the opening of 1st regular session in July last year.
Meanwhile, one of the economic measures that has been approved by Congress before it went on adjournment sine die is the Anti-Money Laundering Act of 2001 (Amla) to include casino operators. The House of Representatives adopted the Senate version of a bill expanding the coverage of Amla of 2001 to include casino operators.
Under the bill, covered transactions include a transaction in cash or other equivalent monetary instrument involving a total amount in excess of P500,000 within one banking day, while for covered persons under this act, a single casino financial transaction involving an amount in excess of P5 million or its equivalent in any other currency, provided that the said threshold may be adjusted by the council based upon the recommendation of the congressional oversight committee.
For his part, PDP-Laban Rep. Ben Evardone of Eastern Samar, chairman of the House Committee on Banks and Financial Intermediaries, said the amendments were intended not only to further strengthen the law, but also to make it fully compliant with the United Nations Convention Against Transnational Organized Crime (2000 Palermo Convention) and related UN conventions, such as the UN Convention Against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988 Vienna Convention) and the UN Convention Against Corruption (2003 Merida Convention), and the international standards on combating money laundering and terrorist financing set by FATF through its Revised 40 Recommendations.
“The laundering of the proceeds of crime is very dynamic. As criminals continue to exploit identified weaknesses of the legal and regulatory structures and mechanisms of jurisdictions in order to surreptitiously launder the proceeds of their crime and make them beyond reach of the legal and judicial powers, the law enforcement and judicial system should likewise evolve to counter them. Our responsibility as legislators is to ensure that our government is equipped with the necessary legal tools,” he said.
At the senate, Senators anticipate rough sailing for the proposed imposition of higher excise taxes on oil products and a tax on sugar-sweetened beverages, among other pending revenue-raising measures, the first of five packages, under the Malacañang-endorsed Tax Reform for Acceleration and Inclusion (TRAIN) bill.
The assessment of which tax-reform measures will likely draw the fiercest and longest debates were made on Thursday by two key senators: Juan Edgardo M Angara who chairs the pivotal ways and means committee; and Majority Leader Vicente C. Sotto III.
To recall, Package 1 submitted earlier by the Department of Finance for Congressional consideration included:
- Lowering of personal income tax and tax bracket changes;
- An automobile excise tax amid surging car sales that have been blamed for much of the worsening traffic problem;
- Value-added tax adjustments, including the lifting of exemptions on some sectors but not for senior citizens and persons with disability;
- The higher oil excise tax; and,
- Sugar-sweetened beverage (SSB) tax on soft drinks and fruit juices, among others.
The SSB was earlier submitted as a separate bill but was later folded into the mother bill for Package 1 embodied in the approved House Bill (HB) 5636, which the Senate is expected to tackle when Congress sessions resume on July 24.
Sotto listed “higher oil and excise tax on sugar” when asked by the BusinessMirror which of the five key items in Package 1 are likely to face rough sailing in the Senate.
In a separate interview, tasked to spearhead Senate hearings on the tax package, initially admitted difficulty figuring out potentially problematic provisions in the tax bill.
“Hard to say, for now,” Angara said. However, Angara also confirmed that, based on initial consultations he had made, he foresees the upward adjustments in oil and sugar taxes as triggering the hottest debates “because of the widespread effects on prices and poorer sectors”.
Comprehensive policy
Packages 2, 3, 4 and 5 are all part of the comprehensive development policy of the Duterte administration, and their staggered implementation is seen to be spread out throughout the rest of his presidency or till 2022, but the DOF had said earlier it hopes to have all the bills embodying these filed, at least within the year.
The timeline for Package 1 is to have it passed by the Senate in eight weeks from session resumption and, hopefully, have the measure signed into law toward year-end, for implementation on January 1 next year.
Package 2 covers the lowering of corporate income tax and the reforms in fiscal incentives, meant to remove the perks from those sectors that have been enjoying them through the years with nothing to show for it.
Package 3 embraces the slew of property valuation reforms.
Package 4 dwells on capital income taxation (interest income, premium payments, dividends and capital gains).
Package 5, seen to be just as controversial, revisits coal and mining taxes.
The debate on higher oil excise tax
Most critics of the DOF-proposed, House-endorsed higher oil excise taxes insist it would have an inflationary effect that would hurt most of the stakeholders for whom the benefits of the total reform package would be negated.
With higher oil taxes, they say, manufacturers would have an excuse to jack up their own prices because they will automatically pass this on to consumers.
Critics also say transportation fares will surely rise as a result, hitting the pocket of workers and offsetting the impact of lower personal income taxes, among others.
The DOF, however, says past experience—as shown by data—dispels such fears of inflation. The fears are simply overblown, according to Finance Undersecretary Karl Kendrick Chua, who recently conducted a briefing for the BusinessMirror on the nitty-gritty of Package 1, which is embodied in HB 5636 that the Senate will tackle when sessions resume.
Inflations remained “low and stable despite significant increases in diesel prices in 2016”, said the DOF briefing paper that pointed to inflation in January 2017 at a low 2.7 percent, even though diesel prices posted a 75.9-percent increase year-on-year (January 2016 and January 2017), or from P18.25 a liter to P32.10 a liter.
Diesel is often used as barometer because it is widely used by public-utility vehicles that workers patronize.
Drawing from historical data and experience, the DOF projects the maximum impact of higher oil excise tax on inflation in year 2018—when Package 1 is envisioned to take effect—at only 0.9 percent. Transportation inflation is projected also low, at 2.8 percent.
The transportation share in the consumer price index (CPI) is set at only 6 percent (in contrast to food, which accounts for a third), and calculated from the daily average of jeepney and bus operations in Metro Manila, based on National Tax Research Center computation.
Neither does the DOF buy the argument that higher oil excise tax will impact food inflation, noting that “rice price is not driven by oil price.”
In sum, the champions of higher oil excise tax describe it as a “highly progressive tax since those who consume more will pay more tax compared to those who consume less”.
The DOF explained this argument with this data from its micro-analysis: “the top 10 percent of Filipino households [around 2 million households]who earn around P113,000 and above per month consume almost 51 percent of fuel.” Meanwhile, the top 1 percent of Filipinos households [or 180,000 households] who earn P288,000 and above per month consume 13 percent of fuel”—which is roughly equivalent already to what the poorest 50 percent consume, or 13.67 percent.
Meanwhile, the DOF also has a remarkable observation on how oil prices impact car sales: the number of cars steadily rose from 2003 and 2013 despite a near doubling of oil prices.
This latter data could bolster the tax reformists’ argument that the excise tax on automobiles, which is also part of Package 1, will definitely not hurt majority of the people, who are reeling more from the impact of traffic—that, in turn, is generally blamed on too many cars crowding old, constricted road networks.
The debate on sugar-sweetened beverages tax
The so-called sugar tax, which originated as a stand-alone bill in the House and was subsequently folded into Package 1 of TRAIN as a revenue driver while addressing health issues (mainly from obesity and related metabolic disorders), is seen as another lightning rod for fierce debates when the Senate tackles HB 5636 in late July.
Leading the lobby to strike down the SSB is, expectedly, the Beverage Industry Association of the Philippines (BIAP), which counts as members the leading manufacturers of softdrinks and fruit beverages—both homegrown and global companies—in the country.
Set up in 1988, BIAP’s members collectively provide jobs to 35,000 direct employees in over 100 manufacturing sites. BIAP claims its members account for total investments of over P130 billion.
In a briefing paper circulated during the House debates on TRAIN, the industry alliance cited data showing “Filipinos are not overconsuming SSBs,” implying that the health purpose of the tax is overstated.
It said Filipinos’ per-capita consumption of nonalcoholic ready-to-drink beverages (NARTD) is “insignificant compared to other countries,” something it attributed to the “smaller package size and less frequent consumption by Filipinos.”
As for the argument that NARTDs play a big role in rising obesity that, in turn, has alarmed the medical profession, BIAP noted that “out of 192 countries in the world obesity index, the Philippines only ranks 155th” and that “it is not in the higher tier of the Asian countries.”
BIAP claimed—anchoring its arguments on Food and Nutrition Research Institute data—that, in fact, the country has seen “declining sugar consumption amid the rise in overweight/obesity and diabetes prevalence.” This simply indicates that “some other type of food”—white rice is often listed as a culprit—could be causing the spike in such diseases, BIAP said.
Image credits: AP/Aaron Favila
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