Popular support critical to push tax reform
Finance Secretary Carlos Dominguez III has underscored the importance of public diplomacy to win popular support for the Duterte administration’s proposed Comprehensive Tax Reform Program (CTRP) by convincing ordinary Filipinos that an overhaul of the outdated tax is the “key link” to “redeeming the country’s future.”
“It is important for us to quickly conduct public diplomacy to win our citizens to the side of reform. We should be able to convince our people of the long-term benefits of renovating the architecture of our country’s revenue system,” Dominguez said “We need to convince our people the comprehensive tax reform package is the key link to a more inclusive economy further down the road.
“This can be done only with the passage of the comprehensive tax reform program. This is the key link to redeeming our nation’s future,” said Dominguez in his remarks during Friday’s tax reform roadshow jointly conducted by the Philippine Chamber of Commerce and Industry (PCCI) and the United States Agency for International Development (USAID) at the Shangri-La Hotel in Makati City.
PCCI-USAID tax reform roadshows have so far been held in the provinces of Pampanga, Palawan, Cebu, Bohol, Davao and Cagayan De Oro to inform the public of the benefits of the CTRP and gather their inputs on how to further finetune the proposed tax reform plan.
Dominguez thanked the PCCI, led by its president George Barcelon, and the USAID for proactively supporting the CTRP and helping the Department of Finance (DOF) pitch its merits before the business sector and the international community.
“Thank you for the support you offer in conducting the public diplomacy paving the way to revenue reforms. Yours are credible voices representing the business community and our development partners. I assure you the support you extend is profoundly appreciated,” he said.
Dominguez noted that previous secretaries and undersecretaries of the DOF have vigorously endorsed this tax reform package, along with multilateral institutions such as the World Bank, the International Monetary Fund, and the Asian Development Bank.
The Philippines’ development partners, as well as several reform-oriented civil society groups have also expressed their support for the CTRP.
Although the CTRP has secured the support of an increasing number of institutions and organizations, Dominguez said, “It is the man-on-the-street we now need to win over. This man-on-the-street is susceptible to populist and free-rider arguments put forward by groups that oppose any and all reforms in taxation.”
Dominguez said the popular proposals in the CTRP’s first package, such as the significant cuts in personal income tax (PIT) rates and estate taxes are “fairly easy to sell” to the public, but they should also be educated on the underlying reasons behind these reforms, which are to align tax rates with the rest of the region to make the Philippines a magnet for investments and to increase the purchasing power of compensation earners to further boost economic productivity.
The CTRP’s first package, introduced in the Congress by Rep. Dakila Carlo Cua as House Bill No. 4774, also aims to lower donor taxes and provide revenue reform measures such as adjusting the excise taxes on automobiles and fuel and broadening the Value Added Tax (VAT) base but retaining exemptions for seniors and persons with disabilities.
Dominguez said the public needs to know why the government is reforming the system of collecting taxes, such as in the VAT.
“The VAT is a stable source of income of revenues. However, our system has been afflicted with too many exemptions inserted by law. These exemptions render the VAT system very, very porous. This is why Thailand collects the same percentage of GDP from its VAT system even though it imposes a rate of only seven percent against our 12 percent,” he said.
“If we are able to close the loopholes, it should be possible in the future to contemplate lowering the VAT rate itself,” Dominguez said.
As far as the DOF can accomplish within the existing tax framework, Dominguez said administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) have already been “pushed” to the limit and produced “palpable results.
The BOC, for instance, has exceeded its target collections in the last quarter of 2016, while the BIR has dramatically increased its revenue intake.
The BOC, for instance, has exceeded its target collections in the last quarter of 2016, while the BIR has dramatically increased its revenue intake. In 2016, the Bureau of Customs collections grew 8.2 percent year-on-year, while that of the Bureau of Internal Revenue grew 9.3 percent year-on-year, Dominguez noted.
“In fact, from January 1 to March 3 of this year, both the BIR and BOC have posted double-digit year-on-year growth in collections, at 13 percent and 15 percent respectively,” he said.
The finance chief said that newspaper headlines highlighting the plan to file charges against cigarette manufacturers involved in producing fake tax stamps “have shown that we are intent on going after tax-evaders, including sacred cows of the previous administration.”
He said the BIR and BOC estimate that the government can collect more than P5 billion in deficiency taxes and duties from seized cigarettes with fake tax stamps.
But Dominguez said “administrative reforms can only accomplish so much,” and accompanying reforms in tax policy are also needed make the system simpler, fairer and more efficient, especially for low- and middle-income earners.
“The reforms we propose seek to achieve these features. While we yield revenues by cutting income taxes, we seek to offset that by putting in tax policies that broaden the tax base,” he said.
Hence, he said, the CTRP is the key to accomplishing the Duterte administration’s goals of closing the infrastructure gap, developing the country’s human capital and shifting from a consumption to an investment-led economy in the near term.
The CTRP, he said, will sustain the pace of growth to 7 percent or better, bring down the poverty rate to 14 percent in the medium term and pave the way for the country to become a high-income economy by 2040.
Investing only half the GDP rate of other Asian countries in infrastructure has led to the poor state of the country’s ports, airports, rail systems, road networks and bridges. “We cannot expect our economy to run like a fine-tuned engine if our infra and logistics backbone is obsolete,” Dominguez said.
A weak infra backbone in an archipelagic country like the Philippines has kept transport and production costs high and hampered development in the countryside, forcing people to migrate to congested urban centers, he noted.
“The net result of poor investments in infra is highly exclusive growth and a domestic economy characterized by uneven wealth distribution,” Dominguez said.