Defer tax cuts, impose new taxes


THE next government should delay planned personal income tax cuts, impose new taxes and eliminate some tax exemptions if it is to maintain economic growth and manage the record debt it will inherit from the Duterte administration, said said the Department of Finance (DoF) on Wednesday. .

In a briefing, Finance Undersecretary Valery Joy Brion said a second tranche of personal income tax cuts due to come into effect next year should be delayed until 2026, adding that this would result in annual savings of 97.7 billion pesos. The tax cuts, primarily aimed at working Filipinos, are mandated by the Acceleration and Inclusion (Train) Tax Reform Act of 2017.

“To clarify, we will further reduce personal income tax in 2026 when tax conditions are hopefully more permissive to reduction,” Brion said.

The proposal is part of a “fiscal consolidation and resource mobilization plan” which the Ministry of Finance said would be “essential” to “help the government continue its productive spending, exit its debt induced by the pandemic and to provide substantial buffers to respond to persistent and future economic shocks. The plan “also seeks to reverse in 10 years the additional debt of 3.2 trillion pesos incurred by the Philippine government due to the Covid-19 pandemic. “, he added.

The postponement of income tax cuts is part of package 1, which also calls for the broadening of the value added tax (VAT) base and a possible reduction in the VAT rate by limiting the zero rates to direct exporters, repealing exemptions except for education, agricultural products, health and finance sectors, and raw foods.

The move is expected to generate an average of 142.5 billion pesos in additional revenue each year.

“We must first broaden the VAT base before considering the possibility of lowering the VAT rate,” Brion said.

Other Package 1 proposals, which the Ministry of Finance aims to implement next year, include repealing the immediate outlay of input VAT on capital goods under the Trains Act; reimpose the 60-month limit for crediting input VAT on capital goods; impose VAT on providers of digital services, including online advertising services; reform the user charge for motor vehicles by imposing a single, unitary rate based on the weight of the gross value of all motor vehicles; and establishing a single, streamlined tax regime applicable to all mining agreements.

The ministry also proposes to impose taxes and royalties on games; a P20 excise tax per kilogram on single-use plastic bags; an excise tax on luxury goods; approval of laws on the taxation of passive income and financial intermediaries and on the reform of the valuation and valuation of real estate; and strengthening tax administration for income taxes of social media influencers.

Overall, the first package is expected to generate an average of 247.8 billion pesos per year.

Packages 2 and 3, meanwhile, which will be implemented in 2024 and 2025, are expected to generate an estimated annual revenue of 126.8 billion pesos.

Proposals include imposing a tax on flavored alcoholic beverages or alcopops; increase excise duties on cigarettes and e-cigarettes; impose a unit rate of 12 pesos per liter of volume on sugary drinks; and raise the excise tax on petrol by P1 per liter for at least three years.

The Ministry of Finance has also proposed imposing an excise tax on household coal; increase the excise tax on domestic and imported coal; clarify the tax treatment of cryptocurrency transactions; and build the capacity of the Bureau of Internal Revenue to conduct transfer pricing audits.

A proposal to impose a tax on carbon emissions is currently under consideration and will most likely be implemented in 2025.

Before the pandemic, the government expected its debt to reach 9.9 trillion pesos by the end of 2022. The latest projections, however, show the number will climb to 13.1 trillion pesos.

Citing data from the Treasury Office, the finance ministry said the government needed to raise at least 249 billion pesos every year to avoid additional borrowing to pay off pandemic-related debt.

Brion said that overall, the average annual revenue impact of all the proposals would be 349.3 billion pesos without taking earmarking provisions into account.

“In accordance with the earmarking provisions under the applicable laws, we deduct 40% of mining revenue for local government units. From sin taxes, we deduct allowances for universal health care and achievement of development goals These deductions average 41.6 billion pesos per year,” she added.

Brion said the balance available to the national government averages 307.7 billion pesos a year.

Implementing the plan, she said, will help the country deleverage and reduce the debt-to-gross domestic product (GDP) ratio to 59.1% in 2023; 57.7% in 2024; and 55.4% in 2025. In the first quarter of 2022, the country’s level of debt to GDP was 63.5%, above the internationally accepted best practice standard of 60%.

Finance Secretary Carlos Dominguez 3rd said, “Failure to pursue a program of fiscal consolidation and resource mobilization could likely have serious and growing consequences for our financial and economic health. “We are optimistic that the new administration and our next group of lawmakers will recognize the importance and urgency of these measures and implement them as soon as possible,” he added.

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