Some 10 million households belonging to the poorest 50 percent of the population will benefit from the proposed fuel excise tax hike under the tax reform bill filed by Rep. Dakila Carlo Cua, in the form of one-time unconditional cash grants totaling P36 billion, according to the Department of Finance (DOF).

Finance Undersecretary Karl Kendrick Chua said Cua’s tax reform measure– House Bill 4774–includes a provision earmarking 40 percent of the first year incremental revenues from the fuel excise tax adjustments to a targeted transfer program to help the country’s poor and vulnerable sectors through unconditional cash grants of P300 a month–per beneficiary-family for one year– to help households cope with the temporary yet moderate price increase.

The total cash grant per household would amount to P3,600 per year, or a total of P36 billion for 10 million households, Chua said.

Another P4 billion would cover the administrative costs of distributing the cash grants, for a total of P40 billion earmarked for the targeted transfer program, which will be implemented for one year, he said.

DOF estimates show that the poorest 10 percent of households will increase expenses by P532 more per year if the fuel excise increase is implemented and another P522 per year as a result of higher prices.

“Thus, tax reform will have a positive impact on poor households who will receive the P3,600 cash subsidy, as they would have a net of P2,546 more to spend per year to help them cope with expenses,” Chua said.

“The targeted transfer program is to mitigate the initial shock of the increase in petroleum excises on the poor and vulnerable sectors. This will allow them to continue spending normally while adjusting smoothly to new price regimes, as well as to weather the initial one-to-two year potential inflationary effect on prices,” Chua said.

Chua said the program will cover the current four million Pantawid Pamilyang Pilipino Program (4Ps) beneficiaries and another six million that would be targeted by the government from the poorest 50 percent of the population.

He said that in the future, the database under the targeted transfer program can be used as part of a disaster relief program that would swiftly identify victims of calamities and rapidly deliver to them emergency cash transfers in times of crises.

Chua said that while the unconditional cash transfer is not perfect, it is nevertheless far better than the current system that provides subsidies that mainly benefit the rich, as the top 10 percent of households consume 51 percent of oil product.

For other low-income groups, Chua said the government will set aside P8 billion from the incremental fuel excise revenues to put in place a “Pantawid Pasada” project and a jeepney modernization program for public utility jeepneys (PUJs).

Households earning P9,000 to P16,000 monthly each will be indirectly protected from the effects of the fuel tax hike through subsidies to public transport under the Pantawid Pasada, where cash cards are given to PUJs to offset higher fuel prices.

The jeepney modernization program, meanwhile, will reduce fuel and maintenance costs for PUJs because their engines will be upgraded to make these more fuel-efficient.

“Under these twin initiatives, the pass-through cost from the fuel tax increase is expected to be at most 50 centavos per trip. It can even be zero impact if we do the mitigating measures well. This will benefit informal workers, minimum wage workers, and commuters,” Chua said.

Finance Secretary Carlos Dominguez III said that “The general rule in crafting the Duterte administration’s income tax reform plan is that the rich will have to pay more while poor and low-income Filipinos will pay less or none at all.”

Dominguez said that “in the medium-term, tax reform is expected to help reduce the poverty rate from 21.6 percent in 2015 to 14 percent in 2022, lifting some six million Filipinos out of poverty, and helping the country achieve upper middle-income country status where per capita gross national income increases from $3,550 in 2015 to at least $4,900 by 2022, close to where Thailand is today.”

Once this momentum is sustained, the country would be well on its way to becoming a high-income economy by 2040 with a per capita gross national income of a least $11,000, which is where Malaysia is right now, he added.

Rep. Dakila Carlo Cua’s HB 4774, which revises the DOF-proposed first package of its Comprehensive Tax Reform Program (CTRP), covers the lowering of personal income tax (PIT) rates and a corresponding set of revenue-compensating measures, including lowering the rates for estate and donor’s taxes, expanding the value-added tax (VAT) base, but retaining the exemptions enjoyed by senior citizens and persons with disabilities, adjusting automobile and fuel excise taxes.

Complementary reforms being considered by Congress to this revised tax package include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation, and granting an amnesty to past estate tax cases.

Moreover, the revised plan also includes legislated administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as the adoption of a fuel marking and monitoring system to prevent oil smuggling and not only to collect the correct taxes but also to ensure that only high-quality petroleum products are sold in the market; the use of e-receipts; the mandatory link of the point-of-sale (POS systems of business establishments directly to the BIR; and the relaxation of bank secrecy laws for investigating and combating tax fraud.

In HB 4774’s explanatory note, Rep. Cua said “to realize these aspirations, the Duterte administration recognizes the need to sustain high growth of at least seven percent every year for one generation, shift the source of growth from consumption to investment, and heavily invest in our people through improved social services, such as public health and education systems, and in better infrastructure to improve connectivity and raise productivity.”

Rep. Cua likewise said that today’s window of opportunity “characterized by strong macroeconomic fundamentals, global recognition for the success of the country, and a popular new government provides the necessary condition” to realize these plans of President Duterte for the country.