The Department of Finance (DOF) envisions its comprehensive tax reform plan to be the catalyst of an ambitious government program to raise an extra P1 trillion yearly for unparalleled public investments geared to free some 10 million Filipinos from poverty in six years’ time and eventually transform the Philippines into a high-income state by 2040.

“In six years, we can become a high middle-income country and reduce 10 million people out of poverty,” DOF Secretary Carlos Dominguez III has stressed in separate sectoral dialogues to win broad public support behind the department’s tax reform program.

“And in one generation, we can become a high-income country and eradicate extreme poverty,” Dominguez said.

But to reach these goals, Dominguez pointed out that the government needs to annually spend as much as P1 trillion more on infrastructure, human capital and social protection—a hefty amount, which, he said, could be consistently raised year after year only by reforming tax policy and administration.

“To meet President Duterte’s goal of freeing 10 million Filipinos from the shackles of poverty under his 10-point socioeconomic agenda for inclusive growth, the government needs to reduce the poverty incidence from 26 percent in 2015 to 17 percent when his term ends in 2022,” Dominguez said. “For this Administration to do so, it must raise enough funds to accelerate public spending on infrastructure, human capital and social protection for the most vulnerable sectors.”

“To achieve more inclusive growth, higher tax revenues are needed,” said Dominguez.

Eventually, he said, the aim is for the government to raise and invest an additional P1 trillion per year in pro-poor and pro-growth public investments so the Philippines can become a high-income economy by 2040, or 24 years from now.

The DOF submitted last month to both chambers of the Congress its proposed Tax Reform for Acceleration and Inclusion Act in keeping with the Duterte administration’s 10-point socioeconomic agenda.

Dominguez said the DOF tax bill was completed after the Department had consulted with members of the Cabinet, legislators, former Secretaries of Finance, prominent economists, stakeholder and business groups, and with various foreign embassies, global financial institutions and joint foreign chambers signifying their support for the tax reform proposal.

Public investments are estimated to reach P1.273 trillion this year, of which P621 billion will be in infrastructure; P454 in education, P128 billion in health, P60 billion in social protection, and P10 billion in training, research and development (R&D) and other programs.

Dominguez said the Duterte administration wants public investments to almost double to P2.29 trillion each year, of which P951 billion will go to infrastructure (or an increase of P330 billion), P908 billion to education (P454 billion increase), P256 billion to health (P128 billion increase) P120 billion to social protection (P60 billion increase), and P55 billion to training, R&D and other programs (P45 billion increase).

Hence, the need for an extra P1.017 trillion per year to double public spending on infrastructure, human capital and social protection over the next 24 years till 2040, he said.

Such massive investments “require robust revenue inflows,” he stressed. “Without reforming our tax system so that it becomes fairer, simpler and more efficient, government cannot undertake the volume of spending required in achieving its goals.”

“To raise the additional P1 trillion per year, the government needs to adopt a fairer, simpler and more efficient tax system with low rates and a broad base that can promote investment, job creation and poverty reduction,” Dominguez said, “and at the same time effect tax administration reforms at our major revenue-generation agencies, the Bureaus of Internal Revenue (BIR) and of Customs (BOC).”

Also, budget reforms must go hand-in-hand with tax reforms “to improve spending, transparency and efficiency as a way to generate savings that could then be invested in infrastructure, human capital and social protection,” he said.

Four leaders of the Senate and House of Representatives—Deputy Speaker Romero Quimbo, Senators Juan Edgardo Angara and Paolo Benigno Aquino IV, and Rep. Dakila Carlo Cua—all cited this DOF-proposed reform package at a tax forum in Makati City last week.

Angara and Cua are the respective heads of the Senate and House ways and means committee; Aquino chairs the Senate committee on education, arts and culture; and Quimbo chaired the House ways and means committee in the past Congress.

Quimbo noted what he called a “paradigm shift at the DOF” from the current direct taxation towards indirect forms of taxation that would raise more revenues for the state coffers.

“I’m absolutely delighted with the fact that the DOF, for the first time in the last seven years, is actually going out of its way to present a comprehensive tax reform program,” said Quimbo, who likewise pointed out that he “rarely see[s] Secretaries of Finance actually presenting at [the tax reform package] at this lateness of this hour.”

Dominguez, along with DOF Undersecretaries Karl Kendrick Chua and Antonette Tionko, attended that tax forum, which lasted past dinnertime.

Cua said at the forum that the DOF’s reform proposals were “timely” and “much awaited,” given that the last comprehensive tax reform was done 30 years ago.

“Hinog na hinog na yung issue (The issue is very ripe) and we will act on it as fast as possible without compromising the quality of the legislation,” he said.

Angara commended the DOF at the forum for coming up with a tax reform package in less than three months into the Duterte administration.

“I have to pay tribute to the DOF for coming up with very comprehensive proposals in Congress in a very short span of time,” said Angara, who also chairs the Senate Committee on Local Government.

Aquino, who also chairs the Senate committee on science and technology, said at the same event that the DOF proposal to lower personal income taxes is not only a revenue issue, but a social justice concern as well.

“Para po sa akin ‘yung (For me, the) personal income tax, it’s more than just a revenue measure, it’s actually for me a social justice measure because again, these brackets were created in 1997,” said Aquino, who also chairs the Senate Committee on Science and Technology.

“And we’re very happy that there’s a lot of openness with the BIR (Bureau of Internal Revenue) and the DOF in terms of pushing for this reform package,” he added.

The first package of the proposed tax reforms that the DOF had submitted to the Congress seeks to restructure the personal income tax (PIT) rate; expand the value-added tax (VAT) base by reducing the coverage of its exemptions; adjust the excise taxes imposed on petroleum products; and, restructure the excise tax on automobiles, except for buses, trucks, cargo vans, jeepneys, jeep substitutes, single cab chassis, and special-purpose vehicles.

The reforms in the PIT rate include adjustments in the income tax brackets to correct so-called income creeping; reduce the personal income tax maximum rate over time to 25 percent from 32 percent at present, except for highest income earners; and shift to a simpler, modified gross system.