President's Message
Atty. Benedicta Du-Baladad Message from the President:

Benedicta Du-Baladad

To FINEX members and friends,

PRESIDENT’S REPORT
July 2017 Issue

Last June 21, in celebration of the Philippine Independence, we had two of the country’s prime-movers of arts and culture. Arch. Paulo Alcazaren shared with us the relevance of national heritage conservation, and Direk Joel Lamangan on the state of the local film industry and how it is developing as an art. Our June GMM was a diversion from our usual topics.

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‘1 with the 99’
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Flor G. TarrielaBy Flor G. Tarriela

MANILA BULLETIN (Business Option)
July 13, 2017

‘1 with the 99’

Business Option is a rotating column of members of the Financial Executives Institute of the Philippines appearing every Tuesday & Thursday in Manila Bulletin, business section.

“1 with the 99”. What does it mean? asked former finance undersecretary Romy Bernardo.  So, with PNB Vice Chair Rico Alfiler and Romy, we attended the Department of Finance’s (DOF) “1 with the 99” forum last week. The forum aims to inform the public about the Tax Reform for Acceleration and Inclusion Act (TRAIN).  DOF Secretary Carlos Dominguez III said that this will ensure the government a “healthy and recurrent revenue flow” to spend big on infrastructure, education, health and other social services, the elements for inclusive growth. Simply put, “it is to shift the tax burden from the lower 99 percent of the population to the wealthiest 1 percent.”

What’s the tax reform about?  Why do we have to do the tax reform?  The tax reform is an indispensable component of “Dutertenomics,” which aims to sustain a high growth rate of seven percent over the medium term.  Secretary Dominguez said that “the TRAIN is pro-poor and taken as a complete package, the reform will enhance the inclusiveness of our economic growth and move us closer to the goal of bringing down poverty incidence to only 14 percent by 2022, or lifting 6 million Filipinos from poverty.”

Undersecretary Karl Kendrick Chua says that the tax reform is “investing in our future,” to address poverty once and for all, where no one is extremely poor.  Who wouldn’t want that? He says, this is no easy road, there will be short-term challenges but long-term results will be beneficial.

What are some features of TRAIN or House Bill 5636 approved by Congress?

The bill aims to slash personal income tax rates, lower donor’s and estate taxes, and at the same time, adjust the excise taxes on fuel and automobiles, broaden the value-added tax base and implement a tax on sugar-sweetened beverages among other measures.

  • Reduce/ lower personal income tax rates
  • Those earning R250,000.00 will be tax exempt meaning zero tax.
  • Tax will be lowered from 32 percent to 25 percent and after 3 years to 20 percent. This will have the effect of increased disposable income.

Secretary Dominguez said 83 percent of Filipinos will be spared from paying taxes that will greatly increase their disposable income, which, in turn, will further rev up domestic market growth. This together with complementary measures is expected to create significant fiscal space amounting to R133.8 billion (0.8% of GDP) in 2018.

  • Reduce estate and donors’ taxes to 6 percent, to be the same as the current Capital Gains Tax.
  • Impose higher excise tax on automobile and fuel. The chart below is a sample of the suggested retail price on automobiles. This shows that there’s minimal effect on lower-priced cars, however tax goes up significantly for high-priced cars.

Tax on diesel?  Isn’t that anti-poor, as jeepney drivers use diesel?  Diesel is used by both the poor and the rich.  In 2016, there were 320 million public vehicles with 1.8 million private cars using diesel.

Usec Chua says there has been no change in fuel tax in the last 20 years. The following conditions support increasing oil excise tax now:

  • Strong economy with growth of 6.8%, one of the fastest in the region
  • Low inflation. Despite the diesel price increase of 50 percent, inflation remained low
  • Low interest level
  • Relatively low and stable oil prices
  • Popular government with strong political capital to do significant reforms.
  • Still, to mitigate the impact of higher diesel tax, the jeepney drivers will be protected by:
  • PANTAWID PASADA – cash cards to public utility vehicles (PUVs) to offset tax increase keeping fares unchanged.
  • JEEPNEY MODERNIZATION – subsidies to PUVs for efficient engines/ better transportation system, among others.

The government need money to spend, to grow and to invest for the future.  So it can’t be all reduction of taxes.  Leonor “Liling” Briones, Secretary of Education, said she now realized that tax is really the lifeblood of the government.

What’s in it for me?  Secretary Benjamin Diokno says the tax reform will mean more and better roads (less traffic, safer and more comfortable ride, less time commuting, more family time) bridges, airports, schools, farm to market roads, etc. which will lead to more economic opportunities, more jobs, more income and better life.

In the past 50 years, 2.6 percent of Gross Domestic Product (GDP) was spent on infrastructure. In the next 6 years with TRAIN, this is expected to go up to 5 percent representing R8-9 trillion to be invested in infrastructure.  Build Build Build!

Usec Chua and Assistant Secretary Paola Alvarez also explained how the TRAIN is expected to help fund the “Dutertenomics” strategy of enabling the government to sustain the Philippines’ growth momentum, support the golden age of infrastructure, attract investments and create jobs, achieve economic inclusion and transform the Philippines into a high middle-income country by 2022. What about collection effort and efficiency? DOF’s Assistant Secretary Mark Dennis Joven also explained the measures being implemented by the BIR & BOC to improve tax administration/collection efficiency and to curb corruption.

While new taxes are always unpopular, we should look at TRAIN as a total package.  You win some, you lose some.  “We can’t have our cake and eat it, too.”  As a whole, it’s well thought out where 99 percent benefit but need to take it from the 1 percent.

Secretary Dominguez said “this is our chance to break out from the cycle of moderate growth and achieve a fast-growing, dynamic and investment driven economy.  We should not let this historic opportunity pass us… that may never converge again.”

Yes, Usec Chua, the TRAIN is for Ashby, our children, grandchildren and the future generation.

Let’s be 1 with the 99, an investment for our country’s future.

****

Ms. Flor G. Tarriela is Chairman of PNB and a Director of FINEX. She was formerly

Undersecretary of Finance and the First Filipina Vice President of Citibank N.A. Department of Trade and Industry This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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