PROPOSED INCREASES in levies on fuel and other basic goods under the Finance department’s tax reform plan could drive up commodity prices by as much as a percentage point, an economist of ING Bank N.V. Manila said yesterday.
Basing his estimates on the first package of proposed tax reforms laid out by the Department of Finance (DoF) last week, ING Bank senior economist Jose Mario I. Cuyegkeng said plans to remove several exemptions from the 12% value-added tax (VAT) and raise the excise tax imposed on fuel products may lead to a faster inflation rate by 2017.
“We estimate that the full impact of the fiscally induced price pressures from higher oil product excise taxes, expansion of VAT’s scope and other taxes would be 0.8 to 1 percentage point increase in inflation rate,” Mr. Cuyegkeng said in a market commentary e-mailed to reporters yesterday.
The package consists of restructuring the personal income tax system, expanding the VAT base by reducing exemptions, increasing excise taxes on petroleum products, and streamlining the excise tax on cars except for buses, trucks, cargo vans, jeeps, jeepney substitutes and special purpose vehicles. Initial DoF estimates peg revenue to be foregone from lower personal income taxes at P180 billion, to be offset by increased collections from the bill’s three other components.
Under a six-bracket tax schedule for 2018, as proposed by the DoF, workers earning up to P250,000 yearly will be exempt from paying taxes. Those earning more than P250,000 but not over P400,000 will be taxed 20% of the excess over P250,000; those earning more than P400,000 but not over P800,000 will pay P30,000 tax plus 25% of the excess over P400,000. Those earning more than P800,000 but not over P2 million will be taxed P130,000 plus 30% of the excess over P800,000; those earning more than P2 million but not over P5 million will pay P490,000 plus 32% of the excess over P2 million. Those earning more than P5 million -- the highest bracket -- will be taxed P1.45 million plus 35% of the excess over P5 million.
The levels were calibrated to make the system more “progressive” and “fair,” Finance Secretary Carlos G. Dominguez III had said earlier.
“We may see the inflation impact by the second or third quarter of next year if both houses of Congress approve the tax reform package in the first quarter or early second quarter,” ING’s Mr. Cuyegkeng added.
The Bangko Sentral ng Pilipinas (BSP) said it also expects higher oil levies to prod inflation, flagging it as an upside risk during its Sept. 22 policy meeting. At the same time, the BSP said it is unlikely that the resulting annual average would top the central bank’s 2-4% target band despite reform’s potential impact on pump prices and transport fares.
BSP Deputy Governor Diwa C. Guinigundo said the BSP expects inflation to average 1.7% this year before moving within target to 2.9% by 2017, which assumes that higher oil taxes will be in place.
Tax cuts for personal income earners and companies were promised by President Rodrigo R. Duterte during his first State of the Nation Address last July 25.
The House of Representatives received the DoF’s first set of tax reform proposals on Sept. 27, but has yet to start committee discussions on the bill as the chamber is currently focused on approving the P3.35-trillion national budget proposed for 2017.
Quirino Rep. Dakila Carlo E. Cua, chairman of the House Committee on Ways and Means, had said that the planned tax system overhaul may be passed as early as yearend.
However, House Speaker Pantaleon D. Alvarez said he has ordered the Ways and Means committee to prepare a “counterproposal” to the Executive proposal, as he is not keen on introducing new duties.
The first batch of reforms is expected to be followed by at least three other packages that similarly seek to reduce some taxes and cover revenues to be foregone by other revenue-generating measures.
The plan to trim corporate income taxes to 25% from 30% will be offset by streamlining tax incentives granted to companies. Lower estate and donor’s taxes will be compensated by increased property valuation rates to raise more funds for local governments.
Taxes on capital income will also be “harmonized” at 10%, which will cover interest earning on deposits, dividends, equity, and fixed income regardless of currency, maturity, and type of investment.
A set of additional luxury taxes -- entailing higher levies on fancy cars, jewelry, fatty food, and income from lotto and casino winnings -- may also be considered should there be a need to “augment” tax collections, Mr. Dominguez told lawmakers.
If passed, the reforms are estimated to result in a cumulative net revenue gain of P368.1 billion by 2019, with P566.4 billion in additional collections making up for P198.3-billion foregone revenues.
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