House approval of tax reform lauded;

Opposition to tax reforms is anti-poor – civil society group


Action for Economic Reforms (AER), a policy advocacy group, lauds the members of the House of Representatives for passing on third reading the Tax Reform for Acceleration and Inclusion (TRAIN).


According to AER, House Bill 5636 adopts the main proposals of the Department of Finance (DOF) and civil society on the necessary reforms including those on the lowering of the personal income tax rates, the  fuel and automobile excise tax adjustments,  and the removal of Value-Added Tax (VAT) exemptions to some goods and services that do not deserve such exemption,


“The bill contains compromises, particularly in allowing the VAT exemption of cooperatives. We believe this should be corrected in the Senate deliberation of the bill. We will continue to be vigilant and will make sure that the bill will not be further diluted and that the essential reforms will be secured,” said Jo-Ann Diosana, Senior Economist of AER.


The group has also criticized groups and some government agencies that oppose the tax reform proposals for spreading misinformation to block the reforms.


“The lowering of the personal income tax rate is welcome, but the revenue loss arising from the lower income tax has to be offset by other tax measures. Simply adopting a populist measure but without raising revenue from other sources is most irresponsible and anti-poor. DSWD professes progressive taxation. But the tax reform is quite progressive, given that the taxes on fuel and auto will be shouldered by the rich and that the spending will benefit the poor, in terms of the cash transfers and expanded economic and social services, said Joy Chavez, Coordinator of AER’s Industrial Policy team.


The Department of Social Welfare and Development (DSWD) expressed in several hearings in Congress its opposition to the fuel tax adjustment and the removal of exemptions in VAT.


“We need to increase revenue not only to compensate for the lowering of the income tax rate and the exemption from income tax of more than 80 percent of the labor force The incremental revenue to be gained from the tax reform will mainly benefit the poor, in terms of creation of jobs, expanded coverage of better quality education, improved health benefits, and enhanced social protection. The DWSD is, essentially, blocking the additional revenues that will be used for pro-poor spending,” explained Chavez.


Figures from the DOF showed that the excise tax on petroleum products has not been adjusted for 20 years now and this has led to a significant drop in the contribution of petroleum to the nation’s public funds. Despite the upward trend in pump prices, consumption of petroleum products has increased, yet, excise tax collection from the same has steadily declined.


Diosana said it is correct to collect taxes more efficiently, and this is part of the comprehensive package.


“Broadening of the VAT base is essential to efficient tax collection. The many exemptions provided to select sectors create opportunities for tax avoidance and evasion. In fact, removing the exemptions in VAT is a way of taxing the rich because they consume more than the poor,” Diosana added.


The bill approved by the House of Representatives last night, increases the threshold of exemption for enterprise or businesses, from PhP1.8 million pesos gross sales or receipts to PhP3 million pesos. “Big and rich cooperatives, some of them bogus and created to get the VAT exemption, gain from this at the expense of the poor,” said Diosana. (END)