INCITEGov Economic Cluster Forum Room 103, School of Economics, University of the Philippines, Diliman, Quezon City January 18, 2018 DOCUMENTATION

Transcription

1 INCITEGov Economic Cluster Forum Room 103, School of Economics, University of the Philippines, Diliman, Quezon City January 18, 2018 DOCUMENTATION 1. Opening remarks. Randy Tuano, board member of the INCITEGov, gave the opening remarks. He observed that the TRAIN Law has been one of the more controversial pieces of legislation that has come out in the past few months because of its immediate, direct effect on the lives of the Filipinos. He also mentioned that the recently-passed llaw is just the first of the six packages of the tax reform. After giving brief background about the forum, he introduced the speakers, Mr. Filomeno Sta. Ana (Men) from AER and Joselito Armovit (Jem) from DAI, and the reactors, Mr. Nikkin Beronilla from NAPC and Ms. Liszy Comafay from IDEALS 2. Main points from the presentation by Mr. Jem Armovit, DAI consultant: a. DAI general findings/changes needed necessary for the tax reform: (1) regressive Personal Income Tax (PIT); (2) high rates but small tax-based; (3) updated excise tax; (4) abusive behavior in related parties on tax-exemption, (5) ineffective authorizing environment; (6) adjust bracket rates; (7) rationalizing exemption adjust rates; (8) adjust oil excise tax; (9) all necessary changes in order to curb the abusive behavior of related parties, (10) tax administration regulatory reforms; and (11) human resource management and organization reform in BIR. b. Properly working indirect tax system means regressive tax system and most of the burden comes from lower income households. Based on the country s previous tax system before TRAIN, the only way that regressive tax system can become progressive is through tax exemptions. c. TRAIN impacted VAT, excise tax, a little bit of income taxes (PIT), for P2: CIT and fiscal incentive reform, for P3: property prices, for P4: Capital Income Taxation, for P5: health, environment, social protection, etc. But looking at the whole picture (including the other packages), it generally affects income taxes. The real target of TRAIN is freeing up the burden of middle income wage earners. 1

2 d. Other gains of TRAIN: sustainable source of revenue, simplified tax filing and minimal inflation numbers. However, there are some disturbing things with TRAIN: failure to remove the documentary stamp tax and estate tax and the failure to relax bank secrecy. e. TRAIN wants to achieve overall progressive tax system. The direction of our tax system is changing because of TRAIN considering the projected effects of P2, P3, P4 and P5. TRAIN is necessary but we need more. 3. Presentation by Men. Sta. Ana of the Action for Economic Reforms. The main points in his presentation are as follows: a. The biggest winner of the tax reform bill will be those earning Php250, or less per annum (working class), and bonuses and 13th month pays up to Php90, will be free of tax (lowering of Personal Income Tax). Other winners shall include those earning less than Php2M with lower income tax rates. On the other hand, micro- and small-scale businesses with total annual sales of less than Php3M are VAT exempt. Per government data, this represents almost 98% of registered businesses. b. The tax adjustments on excise taxes for fuel, with gradual increases over a threeyear spread. This will result to additional expenditures for everyone, where subsistence poor households will spend Php58 and the richest 10% Php 1,600 more in This will generate more than Php55B in revenues that will benefit the poorest 70% households with unconditional cash transfers of Php 2,400 per year and increases in the second and third years. The automobile excise tax will benefit the richer income classes, especially those possessing more than one vehicle. Additionally, this will increase e the burden to the middle class, likely consumers of lower-end or entry-level cars. Sugar-sweetened beverages are imposed an excise tax of Php6 per liter for purely or non-caloric sweeteners; and Php12 to those using purely high fructose corn syrup. While these new taxes will be embraced by health advocates, the absence of earmarking the revenues generated to finance nutrition programs will aggravate malnutrition, a much larger problem than obesity, in the country. Other adjustments are cosmetics enhancement procedures (+5%); coal tax, Php50/kg from Php10; mining tax, 4% (+2%); tobacco, Php35/pack from Php30; foreign currency deposit unit tax to 15%, from 7.5%; and, documentary tax stamp. These measure are expected to amount to Php38.7B for the year. c. Package 1 failed to remove the VAT exemption of vested interest groups in housing, coal, (aviation) fuel, and, luxury cars. He also highlighted that the 2

3 dividend tax of 10% remains untouched, where the rich who earns from dividend income pay end up paying less than the rest of the salaried population. Furthermore, he added that revenues generated from the Package (1) is inadequate to finance spending. To illustrate, the additional revenue will be to the tune of Php90B. In contrast, new spendings (partial) are unconditional cash transfers, Php40B; free college education, Php40B; salary increases for uniformed personnel, Php60B; and, universal health care, Php90B. 4. Reaction by Nikkin Beronilla. The main points in his presentation are: a. Measuring the impact of the tax reform using a simulation based on the approved version, the final version has a milder impact than the earlier DOF version. However, more worse-off households dropped at the poorer deciles (shown in Table 2 of his presentation) but can be partially minimized by the subsidy (shown in Table 3). Based on the main results, the tax reform is not a win-win situation. At CCT level accuracy (87%), the whole package could reduce poverty by 113k HHs but could make 2.89 mn HHs in 5th decile and below worse-off. 5. Reaction by Liszy Comifay. The main points in her presentation are: a. On Personal Income Tax (PIT). The effects on the PIT will not be felt yet in the first year of the TRAIN law implementation. b. On Transparency. It will be easier for the tax filers to file if the process of filing will be simpler. c. On Corporate Income Tax (CIT) (P2). The Philippines has the higher CIT compared to the neighboring countries. In relation to package 1, the CIT does not translate to bigger revenue generation in the TRAIN law. d. VAT exemptions. The issue is that there are too many VAT exemptions. The question that should be raised is: What is the point of VAT if there are many exemptions? e. Stringent Bank Secrecy policy. 6. Open forum/ discussion: a) JC Cruz asked about how do the speakers look into retailers/sellers raising the prices for foods given that the impact of TRAIN to food prices is minimal (less than 1%). 3

4 Men responded by saying that these increases in food prices are just short term noise and will stabilize in less than a year. He mentioned that these retailers are just taking advantage of the situation but in the long run, prices become competitive and will stabilize the situation. b) Jerik Cruz asked how will the 10 Billion Peso gap, in the transfers, will be dealt in the implementation of TRAIN? Men responded by discussing the spending vis-à-vis revenue. He mentioned that the real situation is we have a lot of spending that cannot be covered by the 90 billion peso revenue. The new spending will exceed the expected revenue in TRAIN and that will be the real problem. Men also mentioned that because of this, more borrowing of money is needed to compensate. That also means, there really is no money for infrastructure for the Build! Build! Build! program c) Ve Villavicencio asked about how can the short term effects of TRAIN be communicated to the public and what can be the assurance for the passage of the succeeding packages given the distrust to the current administration by some; Men responded by discussing what can INCITEGov do and that is to monitor good governance and budgeting. Men mentioned the Infra Watch, an initiative of AER, as an example of what they did before. d) Dodo Macasaet asked about other programs which are more cost effective given all the administrative burden in doing the all the transfers. Men responded by reiterating that the goal of TRAIN is to lessen the number of worse-off house households. The effectivity depends on how generous the transfers could be and managing the spending on infrastructures. e) Joshua asked why would the positive effect of TRAIN will be felt on the 3 rd year of implementation? Men responded by explaining that the short term negative effect of TRAIN is projected to hit the people in the first 3 years. The transfers were made to give compensation to worse-off households to minimize the effects of TRAIN. The TRAIN is expected to lessen the number of worse-off households after 3 years and will no longer need the cash transfers for compensation. 7. Closing statements. In closing, Randy Tuano summarized the conversation in the following points: 4

5 a. There are still a lot to be done; implementing the other packages and looking at other reforms in taxation. b. The issues on tax reform are linked to other issues that is not addressed in other packages i.e. looking at the data privacy issues, the national ID system and bank secrecy issue. c. Close pay attention to the subsidy portion of the package and look at the impacts on the specific sectors and households that will also be affected. d. The tax reform will not address all the issues, especially the equity issues. Given that, we need another active program which will address these inequities. 5