Finance Secretary Carlos Dominguez III said further amendments in the country’s tax structure continue to move in the legislature.
“Government made history in 2019 when on its watch, excise taxes on tobacco products were raised twice under one administration, and a new set of ‘sin’ taxes on electronic cigarettes (e-cigarettes) were introduced to deter smoking while augmenting funds for the cash-intensive Universal Health Care (UHC) program that will primarily benefit low-income families,” he said.
“Before the close of 2019, a bill imposing higher excise taxes on alcohol products, and an increase in the tax rates for e-cigarettes such as heated tobacco products (HTPs) and vapor (vaping) products was approved by the Congress and is now up for President Duterte’s signature,” he added.
Dominguez said these new “sin” tax measures comprise Package 2-plus of the Duterte administration’s comprehensive tax reform program (CTRP), providing a steady revenue stream for the government’s planned spending on infrastructure and human capital development.
Tobacco excise taxes were first raised under the Duterte administration through the Tax Reform for Acceleration and Inclusion Act (TRAIN), the first CTRP package, which, on top of benefiting 99 percent of wage earners in the form of substantial personal income tax cuts, also mandated a fuel marking program to curb oil smuggling, and imposed a tax on sweetened beverages as a health measure.
“All the hard work we put in to reform our policies and build an inclusive economy have resulted in a palpable improvement in the lives of our people,” Dominguez said.
TRAIN, which has so far raised P91.3 billion in revenues in the first nine months of 2019, also exempted medicines to manage hypertension, diabetes and high cholesterol from the value-added tax, noted Dominguez.
“The tobacco tax hikes under TRAIN from the then-P30 per pack unitary rate to an increase of only P2.50 per year, however, was too little to make a dent in funding UHC. Thus, the DOF worked with lawmakers to legislate a new law that would significantly increase tobacco excise taxes anew,” he said.
Last July 25, President Duterte signed into law Republic Act (RA) 11346, which raised the excise tax on tobacco products to P45 per pack beginning in 2020, followed by a series of P5-per-pack increases until the rate reaches P60 in 2023. Thereafter, the tax rate will increase by 5 percent every year.
RA 11346 also includes a provision taxing e-cigarettes by at least P10 per millimeter for e-juices with high nicotine concentrations, also known as nicotine salt.
Dominguez said the bill up for the President Duterte’s signature increased the minimal rate to be closer to that of cigarettes, based on comparative consumption patterns.
“Raising tobacco excise taxes twice under a single administration was no easy feat. The administration of former President Benigno Aquino III considered the passage of the first
‘Sin’ Tax Reform Law on his watch as a landmark measure, given that the government then had to overcome a strong industry lobby and tedious congressional debates to be able to sign it into law,” Dominguez said.
“Revenues from RA 11346 and the ‘sin’ tax bill pending in Malacañang will help fill the funding requirement for UHC of P257 billion in 2020, which will grow by an average of around P11 billion to P12 billion per year, or a five-year total of around P1.44 trillion by 2024,” he added.
The government can cover funding for UHC at around P200 billion yearly in the national budget, but needs to raise the gap through sin taxes and other means.
The Duterte administration wants to implement the UHC program as a “first-class law at par with the world’s best healthcare systems,” while discouraging vices such as smoking and binge drinking, according to Dominguez.
Dominguez meanwhile said while Package 1 or TRAIN is now generating revenues to help sustain funding for the government’s infrastructure program and human capital investments, most of the remaining tax reforms are revenue-neutral and aim to correct the country’s outdated tax system to make it simpler, fairer, more efficient and aligned with global standards.
Package 2, or the Corporate Income Tax and Incentive Rationalization Act (CITIRA), aims to lower the corporate income tax from 30 percent to 20 percent over 10 years to bring it closer to the Asean average, while redesigning the current convoluted fiscal incentives system to make it performance-based, time-bound, specifically targeted and more transparent.
“This tax reform will attract more investments and help propel the country to an ‘A’ credit rating from its current improved ‘BBB plus’ while creating a better level playing field for businesses and entice new players to come in and compete,” Dominguez said.
“The House of Representatives approved the CITIRA last Sept. 13, and transmitted the bill to the Senate on Sept.16. The measure is now pending in the counterpart Senate panel,” he added.
Package 3 aims to adopt globally benchmarked valuation standards and a higher degree of professionalism in real property valuation, which will, in turn, promote investor confidence.
This is expected to enhance the revenue-generating capacity of local government units without adopting a new tax measure. The measure will help address right-of-way issues that have long hobbled infrastructure projects by harmonizing real property appraisals.
The bill on this package was approved by the House in November and is pending at the committee level in the Senate.
Package 4 or the Passive Income and Financial Intermediary Taxation Act aims to make the country more competitive in attracting capital and investments, which are urgently needed to finance large-scale infrastructure, Dominguez said.
It will rationalize the tax system in the financial sector to further boost economic growth and create more jobs. The House has approved its version of the bill last Sept. 9 and transmitted it a day later to the Senate, which has no counterpart bill filed on the measure and is considering using the transmitted version for deliberation.
“With these CTRP packages and other reforms being put in place, the Duterte administration is well on track in achieving what had seemed at first as an ambitious goal of bringing poverty incidence to 14 percent by 2022 down from 23.3 percent in 2015, as evidenced by official data showing that 5.9 million Filipinos were lifted out of poverty in three years,” Dominguez said.