THE poor Filipinos of this country are so wealthy they are targeted to pay additional taxes. That is, if proposals at the 17th Congress are approved and a new tax law is passed.
This is the reason lawmakers are treading so lightly on such proposals.
We are currently studying it if its doable, House Speaker Pantaleon D. Alvarez said.
Representative Alvarez of Davao del Norte was referring to the proposal of the Department of Finance (DOF) to lower personal income tax (PIT). But to do so, an estimated P179 billion would be considered foregone revenues.
Hence, the DOF is leaning towards imposing additional taxes on several commodities and remove the value-added tax (VAT) exemptions of senior citizens and persons with disabilities (PWDs).
Liberal Party Rep. Romero Quimbo of Marikina said the government and Congress should study carefully what sector they really want to tax.
Im not in total agreement with excise tax, Quimbo told reporters on Wednesday. I think we need to be very careful and be very precise in targeting the sector we want to tax.
The lawmaker also reminded reporters to remember that this measure is being pursued as a compensating measure for revenue losses resulting from income-tax lowering.
Thats the only justification I can see to support it, Quimbo said. But if ultimately the excise tax will affect the poor more than the rich, thats not going to be acceptable.
According to Quimbo, the last thing the government wants is to transfer the tax burden from the middle class"the sector that will benefit from income-tax reduction"to the poor, the ones who will shoulder [for example, the] bulk of the excise tax on fuel.
Thats inequitable and not progressive, he added.
LIBERAL Party Rep. Edcel Lagman of Albay said his group called The Legitimate 8 is opposing the DOF proposal to remove VAT exemptions of the senior citizens and PWDs.
Definitely, Im against the proposal, Lagman said. This is especially not proper after the signing of the Centenarian Act of 2016 that brings into focus the problems arising from an aging population.
One of the measures [that] should help the elderly is tax exemption from VAT, Lagman added.
Meanwhile, Party-list Rep. Carlos Isagani T. Zarate of Bayan Muna said that the DOF should follow President Dutertes instruction last August to lift antipoor and gender-biased taxes.
So the DOF should drop its proposal to increase taxes for oil products and expand the value added tax (VAT) base, Zarate said. This [proposal] would be counter-productive and would wipe out or, at the minimum, drastically reduce the benefits of lower income taxes. This proposal is patently antipeople and would definitely have an adverse effect on consumers.
Zarate added that he believes higher taxes for oil would create a domino effect that would spike the prices of basic goods and services like water and electricity.
Just imagine, how much a P10 increase in gasoline and P6 increase in diesel would affect the price of rice, fish and meat? Zarate added.
The lawmaker also asked Finance Secretary Carlos G. Dominguez III to reconsider his agencys proposal and look for other non-tax means that would not hit the poor hard.
We can look at the national budget for other items that could defray the lost tax revenue from lowering income taxes, Zarate said.
He cited as example the Risk Management Fund, seen getting P30 billion. There is also the Comprehensive Automotive Resurgence Strategy, proposed to have a budget of $600 million, or P28.2 billion, according to Zarate. He also cited the Industry Competitive Fund, which may get P5 billion.
BUT according to Quimbo, the DOFs tack to lower individual income tax rates is actually long overdue. Quimbo, who is also the House deputy speaker, said the income tax should be adjusted considering that the P500,000 a person earns, for example, amounts to P1.1 million today.
Rosario Manasan, senior research fellow of the Philippine Institute for Development Studies (Pids), describe Quimbos view as the phenomenon of bracket creep.
According to Manasan, the phenomenon results from non-indexation to inflation of personal income-tax brackets.
Simply put, bracket creep occurs when employees income increases over time as a result of inflation, a statement from the state think tank said. This pushes them to pay higher taxes, but their purchasing power remains the same.
According to the Pids, the Philippines has not adjusted its personal income-tax system since 1998.
In the current setup, Quimbo said those earning P10,000 or less every month pay a 5-percent income tax, while those with annual earnings of P500,000 and above pay a 32-percent income tax.
UNDER the DOF proposal, workers earning not over P250,000 annually will be exempted from paying a PIT should the 17th Congress approve its passage into law.
However, to make up for the foregone revenues, the DOF bill will expand the VAT base by reducing the coverage of its exemptions. These exemptions include privileges granted for senior citizens and PWDs, adjustment of excise taxes imposed on petroleum products and restructuring the excise tax on automobiles. The latter, however, exempts buses, trucks, cargo vans, jeeps, jeepney substitutes and vehicles with special purposes.
The finance department said the tax shall be computed in accordance with and at the rates established in two schedules. (See sidebars.)
The proposed measures, if approved, will amend a dozen Sections and Title VI of Republic Act 8424, or the National Internal Revenue Code, as amended.
INCLUDED as offsetting measures are the imposition of higher taxes on petroleum products and eliminating certain exemptions from VAT.
The bill seeks to repeal Section 4 of the Expanded Senior Citizens Act of 2010, as well as Sections 32-A and 33-A of the Magna Carta for PWDs.
Section 4 of the Expanded Senior Citizens Act of 2010 provides VAT exemption for medicines, professional fees of attending physicians in all private hospitals, land mass transit, airfare, seafare, use of services in hotels, admission fees in theater and cinema houses, funeral and burial services for the death of senior citizens.
Sections 32-A and 33-A of the Magna Carta for PWDs provide tax incentives to a family of a PWD.
ALSO under the bill, effective on January 1, 2017, excise tax will be imposed on petroleum products. These products include the following:
Lubricating oils and greases, including but not limited to, base stock for lube oils and greases, high vacuum distillates, aromatic extracts and other similar preparations, and additives for lubricating oils and greases, whether such additives are petroleum-based, per liter and kilogram, respectively, of volume capacity or weight, P10 (from P4.50);
Processed gas, per liter of volume capacity, P6 (from P0.05);
Waxes and petrolatum, per kilogram, P10 (from P3.50);
On denatured alcohol to be used for motive power, per liter of volume capacity, P6 (from P0.05):
Naphtha, regular gasoline, and other similar products of distillation, per liter of volume capacity, P10 (from P4.35).
Leaded premium gasoline, per liter of volume capacity, P10 (from P5.35); unleaded premium gasoline, per liter of volume capacity, P10 (from P4.35);
Aviation turbo jet fuel, per liter of volume capacity, P10 (from P3.67);
Kerosene, per liter of volume capacity, P6 (from P0.00);
Diesel fuel oil and on similar fuel oils having more or less the same generating power, per liter of volume capacity, P6 (from P0.00);
Liquefied petroleum gas, per liter, P6 (from P0.00);
Asphalts, per kilogram, P6 (from P0.56);
Bunker fuel oil, and on similar fuel oils having more or less the same generating power, per liter of volume capacity, P6 (from P0.00).
The bill also said the tax rates shall be increased by 10 percent every year thereafter, effective January 1, 2018, through revenue regulations issued by the secretary of finance.
BASED on the DOFs proposed comprehensive tax-reform package earlier turned over to Dominguez by former Finance Secretary Cesar V. Purisima, an excise-tax increase on gas, diesel and other oil products would bring an estimated revenue gain of P178 billion in its first year of implementation.
Instead of increasing taxes or expanding the VAT, we hope that Secretary Dominguez would help us in scrapping VAT from basic services, like electricity, water, oil products, and even systems loss, Zarate said.
However, the Congressional Policy and Budget Research Department (CPBRD) said the government should study carefully the proposal imposing excise tax on petroleum.
The CPBRD, the lower chambers think tank said in its policy brief that a change in tax structure produces a change in consumer behavior.
The emerging proposals to adjust excise tax on petroleum products are premised on the fact that most of the tax rates were set as early as 1996.
Several considerations must be taken into account in the process of reforming the tax system, the CPBRD report said.
For one, the CPBRD said the countrys excise tax must be comparable with those of member-states of the Association of Southeast Asian Nations (Asean).
Second, The increase in the price of basic commodities as a result of higher taxes could diminish the purchasing power of consumers, the CPBRD report said.
While diesel is excise-tax free in the Philippines, other Asean member-states impose specific tax or ad valorem tax rates on the same product, the report explained.
In particular, the peso equivalent of excise tax on diesel in Malaysia and Thailand are P31.97 and P3.19, respectively. Prior to the enactment of the Reformed VAT, or RA 9337, diesel was taxed at P1.63 per liter.
Three, petroleum products are essential inputs to the production, processing and movement of goods. The transport sector uses up more than two-thirds of total petroleum products, followed by commercial and industry sectors. Four, importers and refiners of oil products are subject to value-added tax, in addition to excise tax. Being a price-based tax, the VAT automatically responds to inflationary changes, which the specific excise tax is not able to capture, the policy body said.
As reported by the Department of Energy, 68 percent of total oil consumption goes to the transport sector, 11 percent to commercial and 9.3 percent to industry
Another important consideration is the impact of excise-tax increase on goods and services, the CPBRD added.
[To address this], the government must design well-targeted social protection"preferably direct subsidy"to mitigate the impact of additional taxes on poor households, it said.
Meanwhile, the CPBRD said incremental revenues from excise tax on petroleum products may be used to beef up infrastructure spending, to upgrade mass transport system and to improve traffic management, among others.
On the positive side, incremental revenues from higher tax rates will help the government to address the unmet needs of the Filipino people. Also, higher fuel price could result in more prudent use of petroleum products, longer service life for roads and bridges, traffic decongestion and lower carbon emission, it said.
THE DOF bill said the following sales by VAT-registered persons shall be subject to zero-percent rate:
The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air-transport operations; provided that the goods, supplies, equipment and fuel have been sold and used for international shipping and air-transport operations;
Foreign-currency denominated sale;
Sales to persons or entities whose exemption under international agreements to which the Philippines is a signatory effectively subjects, such sales to zero rate;
Sale of gold to the BSP;
Direct exports by a registered export producer of exports products, or the sales of export products to another producer or to an export trader:
Meanwhile, the bill said subject to the provisions of this act the following transactions shall be exempt from VAT:
1. Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.
Products classified under this paragraph shall be considered in their original state, even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered in their original state;
1. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets);
2. Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines;
3. Services subject to percentage tax under Title V;
4. Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar;
5. Medical, dental, hospital and veterinary services, except those rendered by professionals;
6. Educational services rendered by private educational institutions, duly accredited by the Department of Education(DepED), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (Tesda)and those rendered by government educational institutions;
7. Services rendered by individuals pursuant to an employer-employee relationship;
8. Services rendered by regional or area headquarters established in the Philippines by multinational corporations, which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific region and do not earn or derive income from the Philippines;
9. Transactions that are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree 529;
10. Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce;
11. Export sales by persons who are not VAT-registered;
12. Sale of real properties not primarily held for sale to customers nor held for lease in the ordinary course of trade or business;
13. Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin, which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;
14. Transport of passengers by international carriers;
15. Services of bank, nonbank financial intermediaries performing quasibanking functions, and other nonbank financial intermediaries;
16. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of P3 million (from P1.5 million);
17. Sale of power or fuel generated through renewable sources of energy, such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy and other emerging-energy sources using technologies, such as fuel cells and hydrogen fuels.
THE bill also said there shall be levied, assessed and collected an ad valorem tax on automobiles based on the manufacturers or importers selling price, net of excise and VAT.
Under the measure, if the net manufacturers price/importers selling price is P600,000, the excise tax will be 5 percent.
If the net manufacturers price/importers selling price is P600,000 to P1.1 million, the excise will be 20 percent of net manufacturing/importation price.
If the net manufacturers price/importers selling price is P1.1 million to P2.1 million, the excise will be 40 percent of net manufacturing/importation price.
If the net manufacturers price/importers selling price is P2.1 million, the excise will be 60 percent of net manufacturing/importation price.
The bill said the brackets reflecting the manufacturers price or importers selling price, net of excise and VAT will be indexed by the secretary of finance once every two years if the change in the exchange rate of the Philippine peso against the US dollar is more than 10 percent from the date of effectivity of this act.
House Committee on Ways and Means Chairman Rep. Dakila Carlo Cua said the DOF proposal will be studied carefully in the lower chamber, as the offsetting measures will affect the poor.
Lone Legislative District of Quirino representative Cua, meanwhile, said his committee will also consider the 25 bills filed at the lower chamber seeking to reduce the income tax imposed on individuals and corporations by amending the National Internal Revenue Code.
Author: Jovee Marie de la Cruz
Date: September 28, 2016
Source: Business Mirror