The national government is conducting consultations with various sectors to fine-tune its comprehensive tax reform plan prior to its submission to the Congress, the Department of Finance (DOF) said.
In a statement, Finance Secretary Carlos G. Dominguez III said that the proposed tax plan, which “balances policy trade-offs,” is part of the Duterte administration’s broader reform program for inclusive growth comprising seven components.
These components include reforms at the government’s two main tax agencies; governance and budget; businesses’ level playing field; business regulations; secure property rights; food security promotion; and traffic, crime and vice.
“From now until the end of the month, we are conducting a series of consultations to further refine this proposal,” said Dominguez at a meeting of the House committee on ways and means chaired by Representative Dakila Carlo Cua.
The DOF also consulted former finance secretaries, legislators, economists, research and advocacy groups to help finalize the tax reform plan, Dominguez said.
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“Tax reform is needed because we now have the tax system that is inequitable, complex and inefficient,” the finance chief explained.
“This program which will be presented to the Congress this month will comprise four packages,” he added. “Each of the packages will correspond to a bill that balances policy trade-offs. Other packages may be considered as needed.”
The first package consists of reduction in personal income tax rates to a maximum of 25 percent, except for the highest income earners.
To offset revenue losses from these tax cuts, the DOF proposed to limit the exemptions to the value-added tax (VAT); higher excise taxes on fuel; sugary drinks tax; and relax bank secrecy laws.
Meanwhile, the government will expand its conditional cash transfer programs and provide public transportation subsidies to protect vulnerable sectors from the impact of these new taxes.
Under the second package, the government will be proposing the reduction in corporate tax rates to 25 percent, along with simplifying other corporate income tax provisions to improve compliance.
To help cancel out foregone revenues, the DOF will rationalize incentives; replace the gross income tax; limit the VAT-zero rating; and remove the use of tax credit certificates.
The third package is the plan to simplify the property tax system by lowering estate and donor tax rates to around 6 percent. This package also involves rationalizing the valuation of properties, increasing valuation closer to market prices and consider increasing valuations every three years.
The final package involves the harmonization of all capital income taxes regardless of currency, maturity and type towards 10 percent so that low-income depositors pay less on the interest income and the rich pay more.
This includes reducing the tax on interest income from peso deposits; harmonizing all capital income tax rate; increased tax for stocks traded in the stock market.
Besides these packages, Dominguez said the DOF is also considering a fatty food tax; luxury tax on automobiles, yachts and jewelry; mining tax; a review of the sin taxes on tobacco and alcohol for health purposes; and lottery and casino taxes.
He said these tax measures “maybe considered given the large investment requirements to achieve our vision of a poverty-free Philippines in one generation.”
Dominguez told the legislators that the DOF has “put the packages together so that there will be a balance between revenue-eroding measures and revenue-enhancing measures.”