The Mindanao Business Council Inc. (MBCI) has given its full backing to the comprehensive tax reform program of the Duterte administration, describing it as “the starting point” to the attainment of the Philippines’s full economic prosperity by 2040.
Led by its chairman, Vicente Lao, the MBCI said that President Duterte’s vision of significantly reducing poverty by 2022 and completely eradicating it 2040, or 24 years from now, “is a dream we share and we will commit to working towards it.”
Lao said the MBCI is one with the Department of Finance (DOF) in making the tax system simpler, fairer and more efficient, which would be achieved by the first package of reforms it had submitted to the Congress last September.
This first package involves reducing personal income tax (PIT) rates, expanding the tax base and adjusting the excise taxes on petroleum products and automobiles, with certain exceptions.
In a statement, the MBCI said that, “As partners for change, we, the Mindanao Business Council, fully support the Duterte Administration’s comprehensive tax reform program (CTRP), spearheaded by DOF.”
“We believe that the program, comprising several packages beginning with the first package submitted to Congress in September 2016, will simplify and correct the inefficiency and inequity of our tax system. More importantly, we believe that the CTRP is fiscally sound, responsible, and will address the development needs of our country, which are particularly acute in Mindanao,” the MBCI said.
“The long-delayed development of Mindanao can be attained by securing peace and investing in the future, particularly rural development. These are at the heart of President Duterte’s economic policy, which we continue to support and seek to advance,” it added.
The MBCI said that, “We applaud the vision and substance of the proposed comprehensive tax reform, and we call on every Filipino to support it. Change is here, and with this proposed reform that change will become economically transformative.”
It pointed out that the proposed PIT reductions “is immediately needed and rightfully deserved by the Filipino taxpayer” as “this will provide due relief for the middle and lower-income classes and spur consumption, the effects of which we hope to feel immediately in Mindanao.”
Lao said the Mindanao business community is also backing the DOF’s proposal to broaden the VAT base by reducing unnecessary exemptions and “insidious sources of revenue leakage.”
“Many of our VAT exemptions aim to protect vulnerable sectors, but we are in agreement with the DOF that these sectors must be protected through more targeted and effective means, and not through the tax system, which benefits the rich far more. Most importantly, rationalizing VAT exemptions will improve compliance and contribute to ease of doing business,” the MBCI said.
Keeping in mind the need to exercise fiscal prudence and responsibility in instituting tax policy reforms, the MBCI said it is supporting too the DOF proposal to adjust the excise taxes on automobiles and fuel.
“Studies have shown both excises to be highly progressive and not inflationary, as evidenced by studies of the Bangko Sentral ng Pilipinas (BSP),” it noted.
Finance Secretary Carlos Dominguez III has assured the public that the tax reform plan will not only raise revenues to fund the country’s infrastructure requirements and investments in human capital, but also aims to protect vulnerable sectors, comprising the poorest 50 percent of the population, from the impact of the government’s revenue-enhancing measures.
The country’s strong economic fundamentals, along with a low price regime that is projected to stay in the medium term owing to China’s slowdown and ample supply from shale oil producers, allows our economy to absorb the increase in fuel excises, which have not been adjusted since 1997.
The country’s past experience with the VAT reform and the oil price shock proved that it can well manage the more moderate increase in oil prices.
In proposing to expand the VAT base, the DOF wants to reduce the lines of exemptions to the tax and confine these only to essential goods and services, such as raw food, education and health care, especially for senior citizens and persons with disabilities (PWDs), DOF undersecretary Karl Kendrick Chua said.
Chua noted that medicines will remain VAT-exempt, and that the elderly would still continue to enjoy their 20 percent senior citizens’ discount under the DOF proposal.
According to Chua, Thailand, with a VAT rate of only 7 percent but with only 35 lines of exemptions, manages to collect revenues representing 4.2 percent of its GDP from this tax system, while the Philippines, with a higher rate of 12 percent and with 60 lines of exemptions, also collects the same 4.2 percent.
To plug the massive leakages in the system, Chua said the DOF is proposing that VAT exemptions for groceries, restaurants, amusement, and travel, which are enjoyed mostly by rich seniors, would be removed and the tax savings generated channeled to expand social pensions for indigent seniors and better health services for PWDs.