The Department of Finance (DOF) is now closely coordinating with the Departments of Transportation (DOTr) and of Energy (DOE) to find ways on how best to deliver indirect subsidies to low-income commuters to soften the impact on them of the plan to increase fuel excise taxes as part of the Duterte administration’s proposed comprehensive tax reform program for inclusion and acceleration.
Finance Assistant Secretary Paola Alvarez said among these social protection measures are the possible issuance of Pantawid Pasada or cash cards to drivers and operators of public utility vehicles (PUVs), setting up fuel depots with subsidized rates for PUVs or giving them cash discounts.
“For public utility vehicles, we are now linking up with the DOTr and the DOE to come up with measures to best implement the cash cards or oil subsidy program, to lessen the impact of the planned fuel excise tax on PUVs,” said Alvarez, the Department’s spokesperson, in a media interview.
Alvarez said that the first package of the tax reform plan, which includes the fuel excise increases, is planned for implementation in 2018 yet, giving the DOF and other government agencies a full year to devise ways on how to deliver the indirect subsidies to low-income commuters and other vulnerable sectors to be affected by the tax hike.
She explained that the main feature of the first tax reform package submitted by the DOF to the Congress last September is the reduction of the personal income tax (PIT) rate from 32 percent to 25 percent that will, in effect, exempt 4.7-M taxpayers, which already include the current 1.7 million minimum wage earners, from paying income taxes.
An additional 3 million taxpayers with taxable incomes of P250,000 and below would be included in the batch that would pay zero taxes under the tax plan.
To offset the revenue erosion from the PIT reductions, Alvarez said the reform plan is complemented by a set of revenue-enhancing measures that include adjusting the excise tax on petroleum products and indexing these to inflation, expanding the value-added tax (VAT) base and restructuring taxes on automobiles, except for buses, trucks, cargo vans, jeepneys, jeep substitutes, single cab chassis, and special-purpose vehicles.
Alvarez acknowledged observations made by some sectors that the tax plan appears to be too “ambitious”, but she pointed out that this was in the sense of implementing hard-to-make decisions to ensure that growth truly becomes inclusive on the Duterte watch.
“It is ambitious in a way that our President is very ambitious also in helping the country. I think he is the only President who actually wants to overhaul and improve our transportation system, wants to bring about inclusive growth, and wants the country’s rural areas developed,” Alvarez said.
She said the Duterte administration’s goal is to make the benefits of growth reach every Filipino by developing the country’s infrastructure, investing heavily in human capital development and social protection for the poorest of the poor.
Alvarez said the tax reform plan submitted by the DOF to the Congress ensures that the rich, rather than the poor, pay more in the form of taxes.
For instance, while diesel is widely used by both the rice and the poor, not doing anything to adjust its tax and indexing it later to inflation benefits the rich far more than the poor because the richest 10 percent of households in the country consume almost 60 percent of oil products and the top one percent use up 20 percent.
With the taxes on oil products unadjusted since 1997, the government, in effect, has been subsidizing the rich in their fuel consumption for the last 19 years, Alvarez said.
Alvarez said that adjusting fuel excise taxes would stop the fuel subsidy enjoyed by the rich and this instead to low-income households and other vulnerable sectors in the form of highly targeted transfer programs.
In a joint statement last month, Secretaries Carlos Dominguez III of the DOF, Benjamin Diokno of the Department of Budget and Management (DBM), and Ernesto Pernia, the director general of the National Economic and Development Authority (NEDA), committed to implement “highly targeted transfer programs” that would cushion the impact of the proposed indexing to inflation of the excise taxes on oil products on “the poorest 50 percent of the population.”
Dominguez, speaking on behalf of the Duterte administration’s economic team, said the government’s planned reforms in tax policy and administration, aims “to achieve a more efficient, equitable, and simpler tax system characterized by lower rates and broader base,” that will, in turn, “encourage investment, job creation, and poverty reduction.”
The near-term goal of the Duterte administration’s tax reform plan, Dominguez said, is to raise P600 billion, which is about 3 percent of GDP, by 2019 to help fund the ten-point socioeconomic agenda of the Duterte administration.
Of this amount, P400 billion (2 percent of GDP) will come from tax policy reforms and P200 billion (1 percent of GDP) will come from reforms in tax administration,.
Dominguez said reforming the tax system and protecting the country’s vulnerable sectors should go hand in hand to realize President Duterte’s goal of making the benefits of economic growth felt by all Filipinos.
“Only when tax reform and targeted transfers are pursued together can we ensure that the resulting policy reform will be truly inclusive and equitable,” Dominguez said.
Dominguez has said the general rule under the Duterte administration is that the rich would have to pay more while poor and low-income groups would pay less or none at all.
