For the Ministry of Finance, borrowing more or cutting spending are not viable options. Presumed President Ferdinand Marcos Jr. is expected to impose new taxes and delay the income tax cut.
MANILA, Philippines — The Department of Finance (DOF) is proposing new taxes, delaying planned tax cuts, and repealing some tax exemptions to get presumptive President Ferdinand Marcos Jr. to reduce government deficits and the accumulation of the debt.
Marcos will take office with tight fiscal space, as pandemic borrowing and weak revenues under President Rodrigo Duterte’s administration have led to debt reaching nearly 13 trillion pesos.
During a briefing on Wednesday, May 25, for some members of the press, excluding Rappler and several others, the DOF said raising taxes and delaying planned exemptions would be “our best bet.” and are “designed to secure the gains” of the Duterte administration. Quotes in this story are based on the DOF press release, while the graphics below are from an official who participated in the briefing.
To give Marcos more money to implement his plans, the DOF proposed the postponement of the personal income tax reduction scheduled for 2023, as specified by the tax reform for the acceleration and l inclusion or TRAIN law. According to the DOF, this would give the government 97.7 billion pesos a year.
From 2023, income tax rates are expected to drop further. Here is a breakdown of the originally planned reduction:
- Individuals with an annual salary of 250,000 pesos or less will continue to be exempt from income tax.
- Those who earn between 250,000 and 400,000 pesos a year will face a lower tax rate of 15% on the excess of 250,000 pesos. Currently, this bracket is subject to an income tax rate of 20% on excess over P250,000.
- Those whose annual salary is between 400,000 and 800,000 pesos will have withholding taxes of 22,500 pesos plus 20% of the excess over 400,000 pesos. Currently, this tranche pays a fixed amount of P30,000 plus 25% of the excess P400,000.
- Salaried employees with an annual income between 800,000 and 2 million pesos will be charged a fixed amount of 102,500 pesos plus 25% on the excess of 800,000 pesos. Currently, people in this bracket are charged a fixed amount of 130,000 pesos plus 30% on the excess of 800,000 pesos.
- Those who receive salaries between 2 and 8 million pesos a year will be charged 402,500 pesos plus 30% of the excess 2 million pesos. These high-income earners currently pay a fixed amount of 490,000 pesos plus 32% on the excess of more than 2 million pesos.
The DOF wants a three-year postponement, from 2023 to 2025.
“Continuing with the fiscal consolidation and resource mobilization program as proposed will help us continue to spend on socio-economic programs, maintain our credit rating and reduce our debt,” said Finance Secretary Carlos Dominguez III. “Acting now is our responsibility to future generations.”
The DOF also proposed broadening the value added tax (VAT) base and repealing exemptions to save 142.5 billion pesos. The agency said exemptions for education, agriculture, health, the financial sector and raw foods should be retained.
He also suggested reimposing the 60-month depreciation period for input VAT on capital goods.
The agency further recommended imposing excise taxes on the following:
- Single-use plastics
- Luxury products
- Social Media Influencers
The DOF has also proposed a 12% VAT on digital services and online advertising to generate 13.2 billion pesos per year. (READ: House panel approves 12% tax on ‘Netflix, Lazada’)
The agency also suggested that Marcos impose taxes on cryptocurrencies, as well as a carbon tax.
In addition, the DOF reiterated its call for the adoption of the latest tax reform packages, in particular the Passive Income and Financial Intermediary Taxation Act, the Assessment and Valuation Reform Act. real estate, the rationalization of mining tax benefits and the indexation of oil excise taxes. and coal excise tax reform.
Data from the Treasury Office shows that the Philippines needs to raise 249 billion pesos each year in additional revenue over the next 10 years to pay off the country’s 3.2 trillion pesos in additional debt.
The measures proposed by the DOF are estimated to bring in an average of about 284 billion pesos a year to the national government.
The Marcos family has an inheritance tax of 203 billion pesos, which remained unpaid for two decades after the Supreme Court’s decision on the matter became final and binding in March 1999.
What happens if Marcos rejects the proposals?
Dominguez warned that inaction on fiscal consolidation could “force the government to reduce spending on necessary socio-economic programs or finance debts with additional borrowing, which would have cascading effects on debt payments. ‘interests that could also eventually force budget cuts and stifle economic growth’.
He added that “failure to pursue a program of fiscal consolidation and resource mobilization could have serious and growing consequences on our financial and economic health.”
The Officer in Charge of Undersecretary Valery Joy Brion, who leads the DOF’s Domestic Finance Group, said that “by the end of 2022, the Philippine government will have borrowed 3.2 trillion pesos more than originally planned. in December 2019, before the outbreak of the COVID-19 pandemic here in the Philippines.
“Our level of debt to GDP stands at 63.5%, slightly above the internationally prescribed best practice of 60% of GDP,” Brion said.
As early as 2023, the Philippine government will begin repaying the principal of loans taken out over the past two years, according to Brion.
Brion added that borrowing more “cannot be a viable option” as it puts the country at risk of having its investment grade credit ratings downgraded. Interest payments would also increase, reducing the resources available for productive spending.
She added that cutting spending would “jeopardize the country’s economic recovery and lead to reduced budgets for education, health, infrastructure and other socio-economic priorities.” – Rappler.com