The Department of Finance (DOF) said Wednesday it presented a revised version of Package 4 of the Comprehensive Tax Reform Program (CTRP) to the Senate, focusing on streamlining passive income tax and financial products while minimizing revenue loss.
A priority measure of the Marcos administration, Package 4 seeks to encourage growth in key financial markets by simplifying the tax structure on passive income and on certain instruments and other financial products.
It was approved on third and final reading by the House of Representatives on Nov. 14, 2022 and is being taken up in the Senate Committee on Ways and Means.
Assistant Secretary Karlo Adriano of the DOF’s Fiscal Policy and Monitoring Group (FPMG) presented to the Senate the salient features of the refined proposal, which aims to maintain the structure of some products and instruments while deferring the implementation of certain provisions by 2028 or when the government is expected to be in a better fiscal position.
Under Package 4, the interest income tax will be harmonized at 20 percent, while royalties will be maintained according to the existing tax code until 2027, subsequently harmonized and decreased to 15 percent in 2028.
Similarly, the dividend income tax will remain unchanged until 2027, with a proposed harmonization of 10 percent in 2028.
The stock transaction tax will gradually be reduced annually by 0.1 percent, from 0.6 percent to 0.1 percent in 2028.
Current taxes on financial transactions, including sales, agreements to sell, memoranda of sales, deliveries or transfer of shares or certificates of stocks will be maintained until 2027 and subsequently removed in 2028. The same timeline applies to taxes on all bills of exchange or drafts.
Tax rates on bank checks, drafts, certificates of deposit not bearing interest and other instruments will remain unchanged, while those of life insurance policies will also see no adjustments.
Rates on policies of insurance upon property, fidelity bonds and other insurance policies will gradually be decreased annually by 1 percent, from 12.5 percent to 7.5 percent in 2028.
Taxes on Philippine Charity Sweepstakes Office (PCSO) tickets, prizes and other winnings will have no changes.
Taxes on mortgages, pledges and deeds of trust will stay as is until 2027, after which they will be lowered to a 0.3 percent rate in 2028.
“The idea here is that [CTRP] was proposed during the pandemic when our debt to GDP ratio was approximately at 40 percent. Basically, during that time, the government has some fiscal space to accommodate some of the losses, but given that we’re already beyond the COVID where our debt-to-GDP ratio is around 60 percent, we have to be mindful of the impact of having revenue-eroding measures,” Adriano said.
The proposed changes to taxes on passive income, financial intermediaries, financial transactions and excise tax on pick-up trucks are expected to yield P12.2 billion in revenues from the third quarter of 2024 to 2028, versus the P83-billion foregone revenue from the original version of the bill and the P19.3-billion revenue loss from the House version.