The Duterte administration needs to raise some P366 billion a year over the medium term, of which some P206.8 billion is expected to come from tax reform in the first full year of its implementation, for it to mount an unprecedented investment strategy that would finally put the Philippines on an “irreversible” path to high and inclusive growth, Department of Finance officials (DOF) told lawmakers on Wednesday.

Undersecretary Karl Kendrick Chua said that only with this sizable increase in revenues, can the government meet its goal of drastically reducing poverty and transforming the country into an upper middle-income economy in 2022 by spending big on infrastructure, human capital–education, health, life-long training, and research and development (R&D)–and social protection for the poor and other vulnerable sectors.

“However, without this planned investment buildup via tax reform, the government will merely “muddle through” and cannot meet the prerequisites to high and inclusive growth, which are a growth rate of at least 7 percent per year, and driven by investments rather than by consumption,” Chua said at the briefing by DOF officials on House Bill 4774 before the House ways and means committee.

HB 4774 is a revised package of the DOF-proposed tax reform plan that was crafted and filed by Rep. Dakila Carlo Cua, who chairs this panel.

According to Chua, computations made by the DOF and the House committee showed that implementing the revised tax reform plan, provided that it would be approved before June this year, would yield a net gain of P41.5 billion in the second half of 2017.

Legislated reforms in tax administration, if enacted on time, will raise another P48.1 billion in the second half of 2017, he added.

The start of the full implementation of tax policy reform in 2018, which will net P162.5 billion, along with another P44.3 billion for that year from legislated tax administration reform, will raise a total of P206.8 billion, Chua said.

In its statement issued last December 20, the Development Budget Coordination Committee (DBCC) said the “projected proceeds from the tax reform package—around P206.8 billion–will fund the government’s big-ticket development projects, particularly the infrastructure program.”

Finance Secretary Carlos Dominguez III has welcomed Cua’s recent statement that the first package would likely be approved by the House ways and means committee in January this year.

Dominguez said that “in the medium-term, tax reform is expected to help reduce the poverty rate from 21.6 percent in 2015 to 14 percent in 2022, lifting some six million Filipinos out of poverty, and helping the country achieve upper middle-income country status where per capita gross national income increases from $3,550 in 2015 to at least $4,900 by 2022, close to where Thailand is today.”

Once this momentum is sustained, the country would be well on its way to becoming a high-income economy by 2040 with a per capita gross national income of a least $11,000, which is where Malaysia is right now, he added.

“To protect the poor and vulnerable, highly targeted transfers and subsidies will be provided as part of the ramp up of social spending from 37.3 percent of the 2016 budget to 40.1 percent of the 2017 budget,” Dominguez said.

Chua said the revised tax reform package, which covers the lowering of personal income tax (PIT) rates and a corresponding set of revenue-compensating measures, will correct the flaws in our tax system.

The House-modified Tax Reform for Acceleration and Inclusion plan retains the DOF proposal of exempting from PIT payments those with a net taxable income of P250,000 and below and simplifying tax payments in order to increase the take-home pay of most Filipino taxpayers and make the system fairer and more equitable. The P82,000 exemption for 13th month and other bonuses will remain.

The revised package also includes lowering the rates for estate and donor’s taxes, expanding the value-added tax (VAT) base, but retaining the exemptions enjoyed by senior citizens and persons with disabilities, adjusting automobile and fuel excise taxes.

Complementary reforms to this revised tax package include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation, and granting an amnesty to past estate tax cases.

It also proposes indexing the motor vehicle user’s charge to inflation and granting an amnesty to past estate tax cases.

The estate tax, which is a tax imposed on the privilege of transmitting properties upon the death of the owner, will also be reduced from the current maximum rate of 20 percent to 6 percent under the revised tax reform plan.

Moreover, the revised plan also includes legislated administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as fuel marking to prevent smuggling, the use of e-receipts, the mandatory connection of the point-of-sale system to the BIR, and the relaxation of bank secrecy laws for investigating and combating tax fraud.

The Duterte administration’s target is to ramp spending on infrastructure to P1.83 trillion, education and training to P1.27 trillion, health to P272 billion and social protection, welfare and job generation for the poorest of the poor to P509 billion by 2022 for a total amount of P2.2 trillion in investments.

This would mean an estimated additional investment of P1.07 trillion for infrastructure, P718 billion for education, P139 billion for health, and P267 billion for social protection each year over the next six years, Chua said.

“Tax administration, which includes improvements in both the BIR and BOC is equally important and is in fact the priority for 2017 before the tax policy reforms are fully implemented in 2018,” Chua said.