SOCIOECONOMIC Planning Secretary Ernesto Pernia said Tuesday that the Congress should immediately act on the proposed comprehensive tax reform package (CTRP) or the country would risk having lower economic output.
Pernia explained the tax reform and the economic and development plan of the government are "inextricably linked".
House Bill (HB) 5636 or the Tax Reform for Acceleration Inclusion (Train) Act was certified urgent by President Rodrigo Duterte on Tuesday.
"The CTRP is needed to increase the fiscal space of the government so that this ambitious infrastructure program, as well as human capital investment program, education and health can be funded," Pernia, head of National Economic and Development Authority (Neda), said.
HB 5636 aims to lower personal income tax rates for compensation earners, expand the value-added tax base, adjust the excise tax on oil products and oil mobiles, impose excise tax on sugar-sweetened beverages, and ease the rates of estate and donor’s taxes.
If the bill is passed before Congress adjourns session on Wednesday, Pernia said the country can expect a better Gross Domestic Product (GDP) by the second quarter of this year.
Citing Neda's analysis, Pernia said that the country's GDP could go up by between 0.6 percent and 1.1 percent by 2022, if the proposed Train law has been passed into law.
But sans the tax reform package, Pernia said the GDP level would lower by between 0.5 percent and 1.1 percent by 2022.
Pernia also warned of "increasing" financial liabilities of the country.
"The government is going to be very cautious in increasing the country’s indebtedness [without the tax reform measure]," he said. "The sequencing of reforms is also crucial. Neda supports the assertion that good tax administration is crucial."
Pernia also said that the government has to "go slow" on accepting or entering into official development assistance with other countries like China because there will now be a need to balance "spending, indebtedness, on one hand and capacity to pay and service the debt on the other hand."
He said that if the government fails to implement tax reform, it would lead to a "dark age" of infrastructure for the Philippines, instead of "golden age".
"So instead of 10 projects, [we can only accept] maybe just one or two. So it's not going to be the golden age of infrastructure. It will be the bronze age of infrastructure or maybe, dark age of infrastructure," Pernia said.
'Tax reform not anti-poor'
Meanwhile, Pernia denied that the tax reform package being pushed by the current administration is anti-poor advocacy.
He said otherwise that the measure is pro-poor program because tax payers with an annual income of below P250,000 are exempted personal income tax.
“It cannot be anti-poor because it’s going to be progressive. It’s going to exempt those who are earning P200,000 and below,” he said.
Pernia, however, admitted that the "small shock effect” of the passage of the bill will be a 1.4-percentage points increase in inflation for a short time.
“The immediate impact, in terms of inflation in 2018, will be 1.4 percent. But then, that quickly dissipates over time. It's really just a shock effect,” Pernia said.
He said the “compensating” measures is to broaden the Value Added Tax base and excise taxes on other products to yield a net revenue gain of about P162 billion. (VoxPop Philippines)
