Change is also coming to the tax system in the country, as the Duterte administration vowed to lift the tax burden from the poor and pass it on to high-income groups.
The Finance Department now focuses on crafting a comprehensive tax reform system which will be submitted to Congress.
Finance Secretary Carlos Dominguez III unveiled a five-package tax policy which would result in net revenue gain of P368.1 billion by 2019.
“Each of the packages will correspond to a bill that balances policy trade-offs. Other packages may be considered as needed,” Dominguez said.
Of the five packages, the first four packages would be submitted to Congress while the remaining package would be tapped later if needed.
The first package involves the adjustment in personal income tax and consumption tax brackets. It aims to reduce the personal income tax rate to 25 percent over time, except for the highest income earners which will be taxed 35 percent. It also calls for a shift to modified gross system that will simplify the personal income tax system.
The package also involves the expansion of the value added tax base by limiting the exemptions enjoyed by senior citizens to raw food, education and health. A targeted subsidy program will be set up to protect the poor and the vulnerable.
“As a general rule, the rich will have to pay more in taxes while the vulnerable sectors of society will be protected through highly targeted subsidies and the conditional cash transfer program. We will ensure that ordinary workers and the bottom 50 percent of households will be fully protected through social protection programs,” Dominguez said.
The department also proposed to increase excise taxes on all petroleum products and index them to inflation, levy a tax on sugary products and index it to inflation, relax the bank secrecy law for fraud cases and include tax evasion as a predicate crime to money laundering,
Package two of the proposed tax policy reform tackles the corporate income tax and other incentives. It aims to reduce the corporate income tax rate to 25 percent over time from the current 32 percent. It also seeks to simplify other corporate and income tax provisions to improve the compliance rate among tax payers.
The second package’s offsetting measures are the rationalization of fiscal incentives to transparent, targeted, performance based and time bound; sunset provisions to existing incentives; expansion of the coverage of the Fiscal Incentives Review Board which will include all incentive recipients beyond state-run –owned and –controlled corporations; replacement of the 5-percent gross income tax rate of 15 percent; strict implementation of the VAT zero-rating to direct exporters; giving full VAT refund in cash; and abolition of tax credit certificates.
The property tax is the third package of the proposal where it is expected to generate a net revenue gain of P40 billion. This measure seeks to reduce the rate of estate and donor’s tax to a low of 6 percent and lower the rate of transaction taxes on land such as document stamp tax, transfer tax and registrations fees.
These measures will be offset by the rationalization of property valuations; increase of valuation close to market prices; and the review of valuation every three years.
The last package that will be submitted to Congress is the capital income tax that will reduce the tax on interest income earned on peso deposit and investment from the current 20 percent to a uniformed 10 percent rate.
This will be compensated by harmonizing capital income tax rates for dollar deposits and investment, dividends, equity, fixed-income rates towards 10 percent and increasing tax on stocks traded in the stock market from 0.5 percent to 1 percent on gross selling price.
The fifth package, which is yet to be finalized by the agency, includes taxes on fatty food, luxury tax on automobiles, yachts and jewelries; mining taxes; sin taxes on tobacco and alcohol (for health purposes); carbon tax; and lottery and casino tax.
“Tax reform is needed because we now have the tax system that is inequitable, complex and inefficient,” said Dominguez.