(Continued from yesterday)
Our revenue generating agencies are putting on the fast lane the digital transformation of their offices to provide convenient, reliable, and transparent services to the taxpayers.
We are the only administration to fully implement a Fuel Marking Program nationwide. Through this program, we expect smuggling and misdeclaration of petroleum products to be greatly reduced, if not totally eradicated, and revenue collections to dramatically increase. By 2022, we also aim to complete the full shift to an electronic invoicing system to do away with some of the redundancies and inefficiencies in the tax system.
When the Tax Reform for Acceleration and Inclusion or TRAIN Law was passed in December 2017, we brought down the personal income tax rates of 99 percent of our wage earners, effectively giving them a 14th month pay. This translated into a substantial increase in consumer demand. It also broadened the tax base and improved compliance.
In order to offset revenue losses from lower personal income tax rates, we introduced excise taxes on a range of sin products. We are the first administration to raise excise taxes on tobacco products twice during a single term. Within the first three years of administration, a new set of sin taxes was imposed on electronic cigarettes and on alcohol. The additional revenue from these measures will help fund the Universal Health Care program that primarily benefits low-income families. Preliminary figures show our tax collections from sin products almost double in 2019 from what they were in 2015.
The Rice Tariffication Law, for its part, produced a nine-peso reduction in rice prices compared to their peak in late 2018. This is particularly helpful for lower income households who spend a fifth of their budgets on rice alone. People now have a wide choice of affordable to premium rice varieties. This is likewise beneficial to the corporate sector as the much lower inflation rate eased the pressure on businesses to raise wages.
These reforms, which effectively reinforce the purchasing power of Filipino consumers, enabled the economy to bring down poverty incidence from 23.3 percent in 2015 to just 16.6 percent in 2018. In three years, a total of 5.9 million Filipinos lifted themselves out of poverty. We stand by our commitment to reduce poverty incidence to 14 percent or lower by 2022.
There are even more impressive numbers related to this.
Official statistics show that the lower income brackets experienced the highest increase in mean per capita income from 2015 to 2018. For the lowest 30 percent of the population, per capita income grew by an average of 32 percent, outpacing the 20.9 percent overall average. The richest 20 percent of the population grew their per capita income by only 18 percent during this period.
Clearly, the growth we are experiencing is not only rapid. It is also inclusive.
Last year, our credit rating was upgraded to BBB plus by Standard and Poors— the highest we have ever enjoyed. Just last week, the Rating and Investment Information or R&I agency also promoted us to BBB plus. This week, Fitch Ratings has revised the outlook on its BBB credit rating for the Philippines from “stable” to “positive,” signaling a potential upgrade of the score within the next few months.
The upgrades create even better conditions for businesses in the country. These developments signal approval of the fiscal discipline that has characterized the policies of the Duterte administration. We are aiming to achieve an “A” rating before the end of President Duterte’s term in 2022.
Higher credit ratings tell investors that it is safe to do business in the Philippines and that the country is highly capable of paying its debts. For the private sector, this means being able to borrow at lower rates to finance business expansions and attracting new investors. Ordinary Filipinos likewise benefit because banks would eventually be able to lend money to them at lower interest rates. This will translate into larger investments, as well as more jobs and a better quality of life for Filipino families.
All the positive conditions described above will be magnified by the passage into law of the remaining tax reform packages. These packages will help produce a more business-friendly environment for investors.
By March this year, we expect the Corporate Income Tax and Incentives Rationalization Act or CITIRA to be finally passed into law. It will bring down our corporate income tax rate from the highest in ASEAN to the regional average. Our high corporate tax rate has been an effective deterrent to foreign investments, making us the regional laggard in this regard.
CITIRA will also rationalize the badly tangled incentives regime and replace this with a targeted, transparent, performance-based and time-bound system. The old tax incentives scheme entrenched old businesses while discouraging new enterprises from competing in the market.
The tangled incentives regime is the result of 13 separate agencies independently awarding their own incentive packages, some in perpetuity. This old system forced government to forego hundreds of billions in revenues. For instance, in 2017, the government gave away a total of 441 billion pesos worth of tax discounts and exemptions to just 3,150 companies. This select group of firms, which account for less than half of one percent of almost a million companies currently registered in the Philippines, pay discounted tax rates of around 6 to 13 percent. (Continued this week)