The Social Security Commission (SSC) has given its full backing to the Comprehensive Tax Reform Program (CTRP) package that the Department of Finance (DOF) wants the Congress to approve to make the country’s taxation simpler, fairer and more efficient, especially for the poor and middle-income Filipinos.
In a resolution approved during its seventh meeting, the SSC, which is the governing body of the Social Security System (SSS), said the CTRP measure now pending in the Congress would create more jobs and further “invigorate” the economy, which, in turn, would have a “positive effect” on the financial viability of the pension fund for the private sector.
“Resolved, that the Commission express, as it hereby expresses, its full support to the comprehensive tax reform package being proposed to Congress by the Department of Finance as the tax reform would generate more employment and further invigorate the domestic economy with positive effect to the financial viability of the Social Security System,” said the SSC in Resolution No. 280-s. 2017.
Signing the resolution were SSS chairman Amado Valdez and its vice chairman-president Emmanuel Dooc along with SSC members Diana Pardo Aguilar, Arthur Amansec, Jose Gabriel La Viña, Anita Bumpus Quitain, Michael Regino and Gonzalo Duque along with Labor Secretary Silvestre Bello III (who is ex-officio member).
SSC Secretary Santiago Agdeppa furnished DOF Secretary Carlos Dominguez III a copy of the resolution.
“This is to respectfully furnish the Secretary of the DOF for his information, a copy of SSC Resolution No. 280-s.2017 pertaining to SSC’s full support to the comprehensive tax reform package being proposed by DOF to Congress,” Agdeppa said.
Finance Undersecretary Karl Kendrick Chua said that “substantial progress” has been achieved in the CTRP bill after the House ways and means committee voted last May 3 to pass a substitute measure drafted by the panel’s Technical Working Group (TWG) that only had moderate changes from the original measure that the DOF submitted last year to the bicameral Congress.
Chua expressed the hope that with the approval of the substitute bill,the HB 5636, the House of Representatives could pass this vital tax reform measure before the Legislature adjourns on June 2.
“Substantial progress has been achieved in the House of Representatives,” Chua said. “We remain hopeful that with this committee vote for the substitute bill, the tax reform measure can still be approved at least by the House of Representatives before the Congress ends its first regular session this June. We will also convince the plenary to include some original provisions that were removed,” Chua said.
“The substitute bill largely follows the proposal of the DOF with some moderate changes. The team is now estimating the revenue and deficit impact of the substitute measure,” Chua said.
The substitute bill, which the House committee chaired by Quirino Rep. Dakila Carlo Chua approved on May 3 by a 17-4 vote with three abstentions, consolidated the DOF-endorsed House Bill No. 4774—it contains the first package of the CTRP—with 54 other similar tax bills.
The committee’s TWG met four times during the Lenten break of the Congress to finalize the substitute bill. After approving this measure, the Cua-chaired panel referred it to the House committee on appropriations for further deliberations on the appropriations or earmarking component of this tax reform measure.
Dominguez said CTRP’s first package aims to help raise enough cash for the aggressive expenditure program that the Duterte administration is undertaking in the medium term to sustain the growth momentum, support the golden age of infrastructure, accelerate poverty reduction and transform the Philippines into an upper middle-income economy by 2022.
“Malacañang’s plan to accelerate spending on infrastructure and on human capital by upgrading the country’s educational and health care systems, along with its goal to lower income tax rates to sharpen the Philippines’ global competitiveness, would require additional revenue measures that could only be generated in part via the CTRP,” he said.
He said this CTRP bill would be the “cornerstone” of the funding for the government’s ambitious “build, build, build” infrastructure program, which will require some P8.4 trillion over the medium term.
Chua said the key features of the substitute bill are the following:
1) the lowering of personal income tax (PIT) rates as proposed by the DOF but indexed to cumulative Consumer Price Index (CPI) inflation every three years;
2) a flat rate of 6 percent for the estate and donor’s taxes:
3) broadening the tax base by removing special laws on VAT exemptions, including those for cooperatives, housing and leasing, but retaining exemptions for seniors and persons with disabilities;
4) staggered “3-2-1” excise tax increase for petroleum products from 2018 to 2020 but with no indexation to inflation, and liquefied petroleum gas (LPG) used as feedstock to be exempted from the hike;
5) a five-bracket excise tax structure for automobiles with a two-year phase-in period for the tax increases; and
6) earmarking of 40 percent of the proceeds from the fuel excise tax increase for social protection programs for the first three years of the tax reform measure’s implementation.
Chua said that for the Value Added Tax (VAT), the threshold for exemptions was increased to P3 million and indexed to inflation every three years.
The zero-VAT rate was also retained for the renewable energy sector and limited to direct exporters, pending the establishment of the DOF-proposed cash refund system, in which refunds can be obtained by the beneficiary-taxpayers within 90 days of their application for such exemptions, Chua said.
For the self-employed and professionals within the VAT threshold ofP3 million, Chua said the substitute bill require them to pay an 8 percent tax on gross sales or receipts in lieu of the income and percentage taxes.
The tax for those above this VAT threshold will be based on the 30 percent corporate income tax rate with minimum tax, Chua said.
He said the Optional Standard Deductions (OSD) was retained at 40 percent but now based on gross income under the substitute bill.
This substitute bill adopted the DOF proposal to subject lottery and sweepstakes winnings from the Philippine Charity Sweepstakes Office (PCSO) to a 20 percent passive income tax in lieu of the lower 5 percent prize fund tax.
Another DOF proposal adopted under the substitute bill was the removal of the 15 percent tax rate for the employees of the Regional Operating Headquarters (ROH) of multinational corporations, which are foreign business entities whose purpose is to service its affiliates, subsidiaries or branches in the Philippines and other foreign markets.
As proposed by the DOF, Chua said the fringe benefit tax will be initially lowered from 32 percent to 30 percent for the first three years and thereafter incorporated in the gross income of taxpayers.
On oil excises, Chua said the original proposal of staggering the P6 increase to P3 in the first year, P2 in the second year and P1 in the third year was adopted, but with no indexation to inflation thereafter.
For automobile excises, five brackets were adopted (based on price levels) under the substitute bill, which also set a two-year phase-in period for its implementation, he said. Pickups are exempted under the substitute bill, along with hybrid cars if these vehicles can run 30 kilometers on a single charge.