CONGRESS SCORED FOR DELAYED PASSAGE AND WATERED DOWN TAX REFORM BILL

PRESS RELEASE

5 April 2017

Congress scored for delayed passage and watered down tax reform bill

Kung gusto, maraming paraan, kung ayaw, maraming dahilan. This was the statement of fiscal policy reform organizations, Action for Economic Reforms (AER) and Foundation for Economic Freedom (FEF) as they warned against the undue delay and dilution of the comprehensive tax reform program (CTRP). The bill failed to get the approval of the Committee on Ways and Means of the House of Representatives before the session paused for a break mid-March.

“Despite many meetings including redundant ones since the second half of 2016, Representative Dakila Cua, Ways and Means Committee Chair, did not call for a vote to submit the bill for second reading. He pulled back, perhaps because he was waiting for the Speaker’s okay, despite the indication that the majority in the meeting would have voted for the bill. To move forward, the Committee resolved to form a technical working group (TWG). Weeks have gone by, and the TWG has yet to be created,” said Filomeno Sta. Ana III, AER coordinator.

AER has criticized Cua for engineering the passage of a bill on tobacco taxation that the group called a weak one —nominally higher rates and two tiers, instead of the best practice of making cigarettes less affordable through significantly higher taxes and having a single rate.

The Finance and Health Departments objected to this bill but Cua and the House leadership were able to pass the bill in just two weeks.

On the other hand, the DOF pitched the CTRP for legislation in the House of Representatives about eight months ago. During this time, Department of Finance Undersecretary Karl Chua and Representative Joey Salceda have been going around the country, attending more than a hundred forums and meetings to explain the rationale and features of the CTRP’s package.

For its part, the AER and FEF have likewise reached out to different multi-stakeholders to get support for the bill.

Their efforts are paying off in getting the endorsement of a broad segment of society—business, labor, urban and rural poor, professionals, civil society, academe, and other stakeholders.

Prime Minister Cesar EA Virata, former National Economic Development Authority (NEDA) Director General Felipe Medalla, former Bureau of Internal Revenue (BIR) Commissioner Rene Bañez, former Finance Undersecretary Romeo Bernardo, and former Agriculture Undersecretary Ernesto Ordoñez have endorsed the DOF tax reform proposal.

Alyansa Agrikultura, Rural Urban People’s Linkages, National Federation of Labor Unions (NAFLU), and Renato Reside of University of the Philippines School of Economics have likewise signed the unity statement pushing for the immediate passage of the bill in its uncompromised form.

“Indeed, Mr. Cua has been looking for excuses to delay the bill’s passage. He has, for instance, used the contrarian position of the Department of Social Welfare and Development (DSWD) to prolong the debate. In the last two meetings of the Ways and Means Committee, the DSWD’s senior officials expressed their “deep reservations,” to quote Secretary Judy Taguiwalo, over the bill. Secretary Taguiwalo only endorsed the reduction of the personal income tax rate. But she stood against the other essential features, including the unconditional cash transfers. The cash transfers are designed to offset the low inflationary impact arising from the excise tax on oil products and the broadening of the VAT coverage,” explained Sta. Ana.

Sta. Ana said it is not surprising for a Cabinet member to go against a priority measure of the administration she is serving. He cited a clash among Cabinet members, regarding the bold but controversial reforms initiated by Environment Secretary Gina Lopez. “However, these differences, no matter how sharp, must be resolved within the Cabinet,” Sta. Ana added.

AER said Cua and his principals, specifically Speaker Pantaleon Alvarez and Majority Floor Leader Rodolfo Fariñas, have the power to pass the bill despite the DSWD’s objection. They should not find excuses like the DSWD’s lame argument to delay the bill’s passage.

Boo Chanco, FEF Fellow and newspaper columnist, offered this analysis about the problem, “Indeed, Duterte’s so called allies in the House continue to defy him. The Tax Reform bill, the cornerstone of this administration’s economic and fiscal program, is not getting the kind of enthusiastic support one would expect for a measure that would spell the success or failure of Mr. Duterte’s watch.”

Meanwhile, Bernardo shared these insights about the fate of the CTRP, “Already, analysts are anchoring expectations of potential revenue gains on similar legislative efforts under past administrations. The sin tax reform passed by the last administration yielded 0.6% of GDP in incremental revenues in its first year of implementation alone while the highly unpopular VAT reform, personally shepherded by then President Gloria Arroyo in 2005 with, much persuading and threats, yielded over 1% of GDP. Considering this administration’s ambitious “golden age of infrastructure” program, an outcome from the current effort that does not measure up to historical standards would, we think, underwhelm markets and cast more doubts on the administration’s ability to deliver on its promised goal of inclusive growth whilst maintaining macroeconomic stability.”

The Department of Finance (DOF) has divided the CTRP into several packages for legislation. The first package consists of the significant reduction of the personal income tax rates, except for the richest one percent; the broadening of the value-added tax (base); and the increase in excise taxes on oil products and on automobiles.

“Rep. Cua and the House leadership should realize that a severely compromised bill and late approval will translate into a public spending cutback in poverty-reduction and social protection programs. The increase in the budget deficit without sustainable revenue will result in a credit downgrade and higher interest rates. All these dampen investment, and hence, a decline in economic output and higher unemployment,” explained Jo-Ann Diosana, AER Senior Researcher. (END)