The Department of Finance (DOF) is proposing the deferment to 2026 the reduction on personal income tax scheduled for next year.
The DOF is also proposing the expansion of goods subject to the value-added tax (VAT) while reducing its rate.
The two proposals form part of the agency’s fiscal consolidation and resource mobilization plan it is set to turnover to the incoming administration as a measure to address the country’s rising debt levels.
The measures proposed by the DOF are estimated to yield an average of roughly P284 billion every year for the national government.
DOF Secretary Carlos Dominguez III said the plan is imperative to “ensure the government can continue to effectively manage its increased budget deficit” amid an ambitious infrastructure, education, and healthcare spending, necessary to drive the economy’s growth and recovery after the COVID-19 pandemic.
Dominguez said the DOF is ready to present to the incoming administration the plan that he said is “critical” to helping the government continue its productive spending, grow out of its pandemic-induced debt, and provide substantial buffers to respond to lingering and future economic shocks.
This new series of measures aims to reverse in a span of 10 years the additional P3.2 trillion debt incurred by the government due to the COVID-19 pandemic.
The DOF noted the Bureau of the Treasury earlier said to prevent new borrowings to pay the debt, the government needs to raise at least P249 billion every year in incremental revenues. Borrowing anew, however, will put a strain on the country’s debt financing capacity and will make borrowing costs higher and will endanger the country’s creditworthiness.
Valery Brion, Finance Domestic Finance Group officer- in -charge said the proposal has three parts that will have to be implemented up until 2025.
Among the immediate measures the DOF sees needs to be implemented are the deferment of the reduction in income tax rate as well as the expansion of the VAT base.
The tax rate of those who earned in excess of P250,000 is supposed to go down to 15 to 30 percent in 2023 from the current 20 to 32 percent, excluding those earning P8 million and above.
There is no specific proposal on the reduction in VAT rate but Dominguez believes it go back to 10 percent from the current 12 percent.
Brion said should the incoming government adopt the deferral of the income tax rate to 2026 instead of the scheduled 2023 implementation, the government can collect P97.7 billion per year in taxes for three years.
The expansion of the VAT base and the possible VAT rate reduction can generate for the government P142.5 billion in revenues every year.
Brion said under the proposal, the VAT zero-rating will be limited to direct exports while the VAT exemptions will only be limited to education, agricultural products, health, financial sector, and raw food.
Brion however said the government must first expand the VAT base first before considering the possibility of lowering the VAT rate.
The proposal also include possibilities to repeal the immediate expending of input VAT on capital goods under Tax Reform for Acceleration and Inclusion Law, and reimposing the 60-month limit to credit input VAT on capital goods.
Online advertisement services, digital services, and supply of other electronic and online services, with an average annual revenue impact of P13.2 billion would also be covered in VAT, as proposed in an approved bill in the House of Representative and remains pending with the Senate, Brion said.
The proposal also includes the imposition of a single and unitary rate on the motor vehicle users’ charge (MVUC) based on the gross vehicle weight of all motor vehicles, which is estimated to generate an average of P38.3 billion of collection every year. Repealing the excise tax exemption of pickups and imposing an excise tax on motorcycles will result to an average of P19.2 billion in annual incremental revenues.
The DOF is also proposing the rationalization of the mining fiscal regime, establishing a single and rationalized fiscal regime to all mining agreements, which is estimated to generate P11.4 billion on average per year.
“We are also considering imposing an export tax on mineral ore to encourage domestic value-added on mineral products,” Brion said.
Dominguez said the plan “is doable and is designed to secure the gains that we have made under the Duterte administration and to ensure that the government can continue to make economic investments and pursue programs for recovery, maintain its high credit ratings, grow out of its debt faster, and cushion the Philippine economy from future external shocks.”
Meanwhile, the National Economic and Development Authority (NEDA) said the possible resurgence of COVID-19 case is the only major threat to the economy on the domestic front.
Karl Kendrick Chua, socioeconomic planning secretary, said the pandemic remains as the main risk locally, as he cited more of external risks.
“The most important thing right now is to continue the vaccination program. Our booster vaccination rate is still 1/4 of the population so that is the most important, to fast track,” Chua said at the Kapihan sa Manila Bay.
Chua also said while Alert Level 1 is enough for now in terms of reopening of the economy, about 20 percent of the country is still in Alert Level 2 because the vaccination rate of certain local government units are below the threshold.
