draft for discussion. subject for change. · 2019. 8. 27. · draft for discussion. subject for...
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
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Vision for the Philippines
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Progress in achieving the 10-point socioeconomic agenda is advancing strongly.
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1. Macroeconomic policies
Constraints to doing business have shifted from macro to micro issues…
World Bank 2005 World Economic Forum 2017-18
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Strong macroeconomic fundamentals underpin solid growth.
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1. Macroeconomic policies
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1. Macroeconomic policies
BB-
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Philippine credit rating
Source: S&P
Investmentgrade
Credit rating upgrade means upgrading everyone’s life.
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2. Tax reform
Tax reform is about INVESTING in our country’s FUTURE.
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2. Tax reform
Impact on Taxpayer’sPersonal Income
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2. Tax reform
Higher tax revenues funding social services and infrastructure
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Lower debt has led to reduced interest payments
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2. Tax reform
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…Creating more fiscal space for more productive spending.
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2. Tax reform
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2. Tax reform
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3. Ease of doing business
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3. Ease of doing business
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4. Infrastructure spending
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photos from DOF, DOTr, BCDA
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4. Infrastructure spending
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4. Infrastructure spending
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5. Rural development
photos from IRRI
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Farmers benefit from the Rice Competitive Enhancement Fund (RCEF)with a 10 billion peso annual appropriation for the next six years, plus any additional amount from rice tariff exceeding PHP 10 billion.
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Rice Competitive Enhancement Fund (RCEF)
Photo: IRRIPhoto: IRRI
Photo: IRRI
5. Rural development
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7. Human capital development
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7. Human capital development
These are some of the specific benefits that Filipinos will receive under UHC if fully implemented.
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9. Social protection programs
photos from DSWD, IRRI
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Results after the first three years
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GDP growth has remained robust despite headwinds in the global economy.
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With higher growth, the Philippines is scheduled to become an upper-middle income country in 2020.
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Poverty reduction is encouraging.
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28.627.9
26.3
27.6
21.0
15.014.0
12
16
20
24
28
32
Pove
rty
rate
(p
erce
nt)
First semester poverty estimates among the population
2006 basket based series 2012 basket based series
Source: PSANote: Poverty rates for 2021 to 2022 represent government targets.
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Photo: IRRI
Rice liberalization is…
pro-consumerpro-farmerpro-taxpayerpro-workerspro-childrenpro-poor
Photo: IRRI
Photo: IRRI
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Rice liberalization reform is a game-changer.
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The next three years will be focused on achieving entirely the 10-point socioeconomic agenda.
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Development objectives in next three years.
• The overarching objectives for the next three years are to:
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Some economic priorities in next three years1. Accelerate implementation of the Build Build Build infrastructure program.
• We have achieved 5.1 percent of GDP spending on infrastructure and we are on track to achieve 7
percent of GDP by 2022. This is consistent with achieving an 8 percent GDP growth.
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● Consider hybrid PPPs
● Improve pre-planning
● Involve LGUs in identification and strategic planning of projects
● Upgrade technical capacity of LGUs to deliver local infrastructure
● Introduce land valuation reform to resolve right-of-way conflicts
● Introduce National Land Use Plan to implement proper zoning
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Some economic priorities in next three years2. Pursue the remaining tax reform packages to make the tax system simpler, fairer,
and more efficient, while ensuring sustainable financing for the infrastructure program. Four major packages remain:
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Package 2
Corporate income tax and incentives reform
Package 3
Property valuation
Package 2+
Alcohol and e-cigarette excise
Package 4
Passive incomeand financial taxes
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Some economic priorities in next three years3. Pursue economic reforms to increase FDI and jobs. Priority bills include
• Public Service Act amendment• Retail Trade Liberalization Act amendment• Foreign Investment Act amendment
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Some economic priorities in next three years4. Improve implementation of existing reforms such as
• National ID• Ease of doing business• Universal health care• Rice liberalization• Social programs to increase investment in health, education, and social protection• Building resilience to climate change
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Some economic priorities in next three years5. Improve the productivity of agriculture, including distribution of
individual titles to land reform beneficiaries.
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Tax reform is about INVESTING in our country’s FUTURE.
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Why tax policy reform is needed: A bad tax system
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Inflation
Special treatment and exemptions
Lack of information (e.g.,
bank secrecy)
Inequity
Complexity
Inefficiency
High tax rates
Narrow base (only about half of the economy
is taxed)
Cause Effect Outcome
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Others
1. Motor Vehicle Users Tax
2. General amnesty with lifting of bank secrecy for fraud cases and automatic exchange of information.
3. Mining tax regime
Duterte Administration’s Comprehensive Tax Reform Program
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Package 1
Package 1A: TRAINPersonal income tax, consumption tax, and
transaction taxes (RA 10963)
Package 1B: Tax amnesty Estate and delinquency tax amnesty (RA 11213)
Package 2
Corporate income tax and fiscal incentives
Package 2+
A. Tobacco excise (RA 11346)B. Alcohol and e-cigarette
Package 3
Property valuation reform
Package 4
Passive income and financial tax
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Package 2Corporate income tax and incentives reform
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Source: Asian Development Bank and PWC
The Philippines has the highest corporate income tax rate in the ASEAN region, yet it has low efficiency.
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• For instance, Thailand collects CIT equivalent to around 4percent of GDP on a 20 percent CIT rate, or an efficiency of 20 percent.
• Meanwhile, the Philippinescollects CIT equivalent to 3.7percent of GDP on a 30 percent rate, or an efficiency of only 12.3 percent.
• Among the ASEAN5, the county is only ahead of Indonesia in terms of efficiency.
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Lower corporate income tax
582021 2022 2024 2026 2028 2030
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We have a complex tax incentives system.
We grant the most generous fiscal incentives since they are in lieu of all taxes and given forever.
Source: Individual country finance agencies and investment promotion offices. 59
• 13 IPAs• 133 investment laws and
209 non-investment laws, total of 342 special laws
• 549 ecozones and freeports
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In 2017, over PHP 441 billion was granted to 3,150 firms
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Source: DTI, TIMTA, and DOF estimates
Resulting in many and unnecessary incentives
(2.8% of 2017 GDP)
● Firms with no incentives pay the regular rate of 30% of net taxable income
● Firms with incentives pay between 6% and 13% effective tax
● For example, almost all of the 90,000 SMEs pay the regular 30% rate.
In 2017, 989,166 registered firms
In addition, PHP 63 billion was lost due to possibleabuse of transfer pricing
(0.4% of 2017 GDP)
Total: PHP 504 billion(3.2% of 2017 GDP)
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Package 2Fair and accountable tax incentives system
Every peso granted as tax incentive is a peso off the budget that could have been spent for infrastructure, health, education, and social protection that benefit all,
and not only a few.
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Package 2+Alcohol and tobacco excise taxes
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1. Ensure financial sustainability for health expenditure programs
2. Discourage excessive alcohol, tobacco, e-cigarettes, and sweetened beverages consumption for better health and social outcomes, especially among the youth and poor
3. Ensure a healthy, world class workforce
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Funding gap before the enactmentof Republic Act (RA) 11346
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Funding gap before the enactment of the increase in tobacco taxes (RA 11346)
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Funding gap after theenactment of the RA 11346
Totals may not add up due to rounding.Totals may not add up due to rounding.
Funding gap after the enactment of the increase in tobacco taxes (RA 11346)
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Excise tax rates of cigarettes for pack of 20 (PHP per pack) under RA 11346
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Excise tax rates of heated tobacco products for pack of 20 (PHP per pack)
Increase to 45 pesos per pack in 2020, and further increase by 5 pesos per pack per year like regular cigarettes.
a. RA 11346 b. DOH-DOF proposal and HB 1026 as amended
10 10.5
2020 2021 onwards
5 percent indexation every year thereafter(10.5 in 2021)
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Excise tax rates of vapor products (PHP)
10
4550
5560
63
0
10
20
30
40
50
60
70
RA 11346 2020 2021 2022 2023 2024
PH
P
DOH-DOF
RA 11346 2020 2021 2022 2023 2024
104.5 5.0 5.5 6.0 6.3
3035
4045 47
0
10
20
30
40
50
60
70
RA 11346 2020 2021 2022 2023 2024
PH
P
HB 1026 as amended
Freebase Nicotine or salt nic
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
DOH-DOF 2020 2021 2022 2023 2024 Total
HTPs 0.1 0.1 0.2 0.2 0.2 0.8
Vapor products 3.1 3.4 3.8 4.1 4.3 18.7
Total 3.2 3.6 3.9 4.3 4.5 19.5
Estimated incremental revenue* (PHP billions)
HB 1026 as amended 2020 2021 2022 2023 2024 Total
HTPs 0.1 0.1 0.2 0.2 0.2 0.8
Vapor Products 1.1 1.3 1.5 1.7 1.8 7.4
Total 1.2 1.4 1.7 1.9 2.0 8.2
72*Additional revenues to RA 11346. Preliminary estimates. Totals may not add up due to rounding.
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Specific excise tax rates (PHP per liter) on fermented liquors (e.g., beer) and alcopops
25
40
45
50
55
61
0
10
20
30
40
50
60
70
2019 2020 2021 2022 2023 2024
PH
P
DOH-DOF HB 1026 as amended
73
25
3234
3639
41
0
10
20
30
40
50
60
70
2019 2020 2021 2022 2023 2024
Perc
ent
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Specific excise tax rates (PHP per proof liter) on distilled spirits (e.g., brandy, rum, whiskey, and gin)
23
40
45
5055
61
0
10
20
30
40
50
60
70
2019 2020 2021 2022 2023 2024
PH
P
DOH-DOF
23
35
40
4548
52
0
10
20
30
40
50
60
70
2019 2020 2021 2022 2023 2024P
HP
HB 1026 as amended
74
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Ad valorem excise tax rates (NRP per proof) on distilled spirits (e.g., brandy, rum, whiskey, and gin)
DOH-DOF HB 1026 as amended
20
25 25 25 25 25
0
5
10
15
20
25
30
2019 2020 2021 2022 2023 2024
Perc
ent
2022 22 22 22 22
0
5
10
15
20
25
30
2019 2020 2021 2022 2023 2024Pe
rcen
t
75
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
* Additional revenues to RA 11346. Preliminary estimates. Totals may not add up due to rounding.
DOH-DOF 2020 2021 2022 2023 2024 Total
RA 11346 15.5 22.6 26.6 32.6 31.6 128.9
Alcohol 33.3 41.8 49.9 57.7 66.3 249.0
E-cigarettes* 3.2 3.6 3.9 4.3 4.5 19.5
Total 52.0 67.9 80.4 94.7 102.4 397.4
Total revenue estimates under DOH-DOF proposaland HB 1026 as amended (PHP billions)
82
HB 1026 as amended 2020 2021 2022 2023 2024 Total
RA 11346 15.5 22.6 26.6 32.6 31.6 128.9
Alcohol 16.6 19.9 23.1 26.2 29.7 115.5
E-cigarettes* 1.2 1.4 1.7 1.9 2.0 8.2
Total 33.3 44.0 51.3 60.8 63.3 252.6
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Package 3Property valuation reform
83
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Property valuation reforms
1Unrealized revenues and
socio-economic benefits from delayed projects
Conflicting land values result in right-of-way compensation problems
2
3 4 5Lengthy court litigations arising
from valuation disputesProjects are delayed Cost overruns
Effects ofoutdated
land values
84
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Sample of huge disparities in valuations
Ayala Avenue, Makati City
✓SMV: Php40,000 per square meter (FY 1994/1996)
✓SZV: Php439,000 (CR) per square meter (2017)
✓MV: Php700,000 per square meter
Legaspi Village, Makati City
✓SMV: Php29,000 per square meter (FY 1994/1996)
✓SZV: Php320,000 per square meter (2017)
✓MV: Php390,000 per square meter
E. Rodriguez Jr. Ave – C5, Quezon City
✓SMV: Php35,000 per square meter (FY 2017)*
✓SZV: Php100,000 (CR) (2012)
✓MV: Php130,000 per square meter
*Under TRO (April 2017)
87
Sales Listing gathered in the internet; value estimate
on land based on abstraction/extraction method.
-
500,000.00
1,000,000.00
MVSZV
SMV
Ayala Avenue
Legaspi Village
E. Rodriguez Ave Jr. – C5
18x
13x
4x
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Property valuation reforms
Adopt international standards, rationalize the process
Establish single valuation base for taxation, benchmark for other purposes
Insulate valuation from undue politicization.
Recentralize the neglected function of LGUs; improve oversight by NG
Establish comprehensive database to support valuation function
VALUATION
90
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Package 4Passive income tax and
financial intermediary tax (PIFITA)
As of 8/5/2019 5:10 PM
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Multiplicity of rates
1. By product (interest income, dividends, capital gains, banks, insurance, DST)
2. By type of lending (private or public / currency bank deposits)
3. By issuer (RBU, FCDU, OBU)
4. By currency (peso vs. foreign)
5. By maturity (short vs. long-term)
6. By taxpayer (individual vs. corporate)
7. By residency (resident vs. non-resident)
8. By business status (engaged vs. not engaged in business)
9. Under special laws (42 special laws)
8/27/2019 92
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Comparison between the current and proposed systems
Type of income/financial
intermediaries/transactions
Number of unique rates/bases (current)
TOTAL 80A. Tax on passive income 52
1. Interest 22
2. Dividends 13
3. Capital gains/transfers 17
B. Tax on financial intermediaries 8
1. Banks and non-banks subject to GRT 5
2. FIs subject to premium tax 1
3. Other FIs subject to VAT 2
C. DST on financial transactions 20
8/27/2019 97
Number of unique rates/bases (proposed)
4023
9
9
5
5
2
1
2
12
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Reform as bridging the future
Source: https://www.pinterest.com/explore/social-stratification/101101
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Source: https://scottdeutschtalks.files.wordpress.com/2016/05/who-wants-change.jpg102
Reform
coalitions
needed to
understand
the reform
as a package
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DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Thank you
Photo: IRRIPhotos: IIRI
103