Economic Journalists Association of the Philippines
(EJAP)
August 28, 2018
(Greetings)
Thank you for this opportunity to discuss with you the reform efforts we are undertaking to lay the strongest foundations for sustained and inclusive long-term growth.
Notwithstanding the restrained growth performance during the second quarter, the Philippine economy remains one of the fastest growing in Asia.
This growth is increasingly fueled by investments. As a share of GDP, capital formation, which is the most comprehensive measure of investment, rose to 27.4 percent during the first half of 2018 compared to the 25.4 percent during the same period in 2017. This is remarkably higher than the 21.3 percent average share of investments to GDP for the past 16 semesters.
Of the major components of investments, fixed capital, which mainly consists of construction and durable equipment, grew by 14.8 percent compared to 10.4 percent in the same period in 2017. This is a substantial increase from the 12.4 percent average growth for the last 16 semesters.
Foreign direct investments soared by 142.9 percent in May this year, rising to 1.6 billion US dollars from 677 million US dollars in the same month in 2017. From January to May this year, foreign direct investment net inflows grew by 49 percent to 4.8 billion US dollars compared to the 3.3 billion US dollars posted for the same period last year.
Our fiscal performance also exceeds our own expectations. Based on preliminary data, total revenue collections for the first seven months of this year amounted to 1.65 trillion pesos. This is 21 percent higher than the same period last year.
Tax revenues amounted to 1.47 trillion pesos, 18 percent higher than the same period in 2017. Of the total tax revenues, collections from the Bureau of Internal Revenue (BIR) improved at 14 percent or 1.1 trillion pesos, and the Bureau of Customs (BOC) collections reached 331.5 billion pesos, a full 35-percent increase over the same period last year.
Our tax effort has improved as a consequence. At about 15 percent of GDP, our tax effort matches those of the best-managed economies in the region.
The improvement in the tax effort is a result of the continuing administrative reforms in our revenue agencies as well as the effects of the new tax reform law.
Healthy revenue collections help us make the necessary economic investments to sustain our growth momentum long into the future. They enable us to make the investments in our precious human capital to power the modernization of our economy.
The first package of the comprehensive tax reform program increased the disposable income of 99 percent of the working population. Filipinos earning below 250,000 pesos annually are now exempted from paying personal income taxes while workers earning above it now receive about a month’s extra take-home pay each year.
To emphasize that point, by correcting the tax rate for our wage earners, we have basically given out a 14th month pay. A total of 12 billion pesos monthly have been restored to the ordinary taxpayers for them to use as they wish.
The sustained robust sales of retail giants and fast food chains since this year’s implementation of the new tax law prove that Filipinos now have more money to spend as a result of the hefty personal income tax cuts.
To be sure, increases in the effective take-home pay contributes to the inflationary pressures we are now experiencing. But it is, in a significant way, a measure for the alleviation of our working class. Those mistakenly calling for a suspension of the tax reform law must explain to the 99 percent of Filipino taxpayers why a higher tax penalty will be restored on their incomes.
The lower personal income tax rate will help us build a stronger middle class. This puts the Philippines on track to becoming an upper-middle-income country by 2022 and makes progress in poverty reduction by lifting one million Filipinos from poverty each year.
The first package also lowered the estate and donor’s tax, from 20 percent of the net estate value and 15 percent on net donations, to only a single tax rate of 6 percent. Unfortunately, your children who will benefit from this have not yet gotten it and have not yet thanked us for that. This makes the land market more efficient because as we know, many people do not pay the estate taxes on land and therefore, the land is still in the name of their forbearers and cannot be developed.
A complementary package to the first tax reform law is Package 1B. It consists of the proposed tax amnesty program complemented by the lifting of bank secrecy laws in tax fraud cases; the automatic exchange of information between the Philippines and its treaty partners; and adjustments to the Motor Vehicle Users’ Charge (MVUC).
The program will help clear the tax dockets as well as enable the transfer of stranded real estate properties so that they can be made economically useful. In particular, we proposed an estate tax amnesty where the government collects only 6 percent of the net undeclared estate tax for those who died prior to January 1, 2018.
We are likewise proposing a general tax amnesty on all unpaid internal revenue taxes, excluding internal revenue taxes arising from importation and customs duties.
The amnesty also covers tax delinquencies by offering a rate of 50 percent on the basic tax only, excluding surcharges and interest charges. For those already facing criminal cases in court, we are proposing a rate of 80 percent of the basic tax only.
The most important elements of the succeeding tax reform packages are the reduction of corporate income tax rates and the rationalization of our fiscal incentives system.
The reduction of the corporate income tax rate will bring our tax regime closer to the regional average. This will help us attract investments to fuel our economic growth. Even more important, the reduction in the corporate income tax rates will benefit tens of thousands of small and medium industries that employ the biggest number of Filipinos.
The rationalization of fiscal incentives, in turn, will create a level playing field for our enterprises and attract new players to compete. The accretion of so many incentive schemes through the uncoordinated action of legislators and economic zones produced chaos. We are seeking the rationalization of incentives to encourage enterprises to hire more workers, improve their competitiveness and deliver on the social benefits for which the incentives were granted in the first place.
Other tax reform packages include Package 2 plus which contains additional excise taxes on tobacco and alcohol products as well as an increase in the government’s share from mining.
Package 3 covers reforms in property valuation to make the system more equitable, efficient and transparent.
Package 4 proposes the rationalization of capital income taxation to address the multiple rates and different tax treatments and exemptions on capital income and other financial instruments.
The reform of our tax policy is meant not only to ensure government a reliable revenue base but, more importantly, to enhance the modernization of our economy. This is the historic significance of this reform program. It will have lasting effects on our economic performance for many decades to come.
If we do not modernize our infrastructure today and if we do not modernize our tax policy this year, we cannot possibly sustain our pace of growth. We cannot become the dynamic and inclusive economy that is the norm for our region.
As economic journalists, you know that your jobs go beyond just reporting the numbers. I hope you will give context and perspective to the reforms we are doing. Managing our fiscal stability sometimes requires doing things that are not necessarily popular. But it is only because the public fails to fully appreciate the long-term gains of doing them. I hope our economic journalists will help us convey the long view for the reforms we are undertaking.
To be sure, we are facing an uphill climb in the effort to pass the succeeding packages of the comprehensive tax reform program. Some of these reforms run against deeply entrenched vested interests. It is always difficult to reform tax policies on the eve of an election year. I am sure you can help us explain to our legislators that the succeeding reform packages will be good for the Filipino people.
Be assured that the Department of Finance is ready to help you with the latest numbers and, more important, explain to you the rationale behind our policies and our goals in pursuing them. Let us keep our channels of dialogue open and active.
Thank you and good day.
-oOo-
Copyright © 2021 Department of Finance