draft for discussion. subject for change. · smv: php40,000 per square meter (fy 1994/1996) szv:...

DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

1


By 2022

17

3,996USD

3,500USD

at least

12,376USD

3,500USD


Progress in achieving the 10-point socioeconomic agenda is advancing strongly.

19


39

GDP growth has remained robust despite headwinds in the global economy.


40

With higher growth, the Philippines is likely to become an upper-middle income country next year.


Poverty reduction is encouraging.

41

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.


42Source: First Quarter 2019 Social Weather Report, Social Weather Stations

Self-rated poverty: Families who are “mahirap”, Philippines, April 1983 to March 2019


Photo: IRRI

Rice liberalization ispro-consumerpro-farmerpro-taxpayerpro-workerspro-childrenpro-poor

Photo: IRRI

Photo: IRRI

4343

Rice liberalization reform is a game-changer.


The next three years will be focused on achieving entirely the 10-point socioeconomic agenda.

44


Development objectives in next three years.

• The overarching objectives for the next three years are to:

45


Some economic priorities in next three years1. Accelerate implementation of the Build Build Build infrastructure program.

• We have achieved 5.1 percent of GDP budget on infrastructure and we are on track to achieve 7

percent of GDP in infrastructure spending in three y a s’ time. This is consistent with achieving an 8

percent GDP growth.

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● Hybrid PPPs

● Improve pre-planning

● Involve LGUs in identification and strategic planning of projects

● Upgrade technical capacity of LGUs to deliver local infrastructure

● Land valuation reform to resolve right-of-way conflicts

● National Land Use Plan to implement proper zoning


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:

47

Package 2

Corporate income tax and incentives reform

Package 3

Property valuation

Package 2+

Alcohol excise

Package 4

Capital income and financial taxes


Some economic priorities in next three years3. Pursue economic reforms to increase FDI and jobs. Priority bills include

• Amendment to the Public Service Act • Opening up retail trade further

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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

49


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.

5151


Why tax policy reform is needed: A bad tax system

52

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


Duterte Administration’s Comprehensive Tax Reform Program

53


55

CTRP estimated revenue collection

(2018-2022)0.4

1.0 1.0

0.7 0.6

3.5

0

1

2

3

4

2018 2019 2020 2021 2022 2018 to 2022

Per

cen

t o

f G

DP

CTRP revenue estimates, 2018 to 2022

Source: DOF staff estimatesNotes: The blue bars represent annual estimates , while the green bar represents the combined 5-year estimate.

Tax reform is expected to raise 3.5 percent of GDP annually by 2022.


Package 1Tax Reform for Acceleration

and Inclusion (TRAIN)

58


59

Shift to a simplified PIT system, and reduce the max

rate to 30% over time.*

Restructure the tax for self-employed to an

optional flat tax of 8%.

Reduce and restructure th d n ’s tax t a

single rate of 6%.

Reduce and restructure the estate tax to a single rate of 6%.

Broaden the VAT system by reducing the number of exemptions.

Increase the excise tax on petroleum products gradually.

Simplify excise tax on automobiles.

Introduce a tax on sweetened beverages.

Introduce and update taxes on: cosmetic procedures, coal excise, mining, tobacco,

foreign currency deposits, capital gains, stock transactions, and documentary stamp taxes.


VAT comparison with other countries

6161


Widening the VAT base by reducing exemptions

The number of lines of VAT exemptions in the NIRC slightly increased due to:i) The adoption of some special laws such as the VAT exemption of senior citizens and PWDs in the NIRC,ii) The introduction of VAT exemptions on association dues, transfer of property if in pursuance of a plan of merger or consolidation, and hypertension, high cholesterol, and diabetes medicines, andiii) The movement of the sale of gold to BSP from a VAT zero-rated to a VAT exempt transaction.

Despite this slight increase, the number of exemptions in special laws has been substantially cleaned up, resulting in the significant decrease in the total number of exemptions.62

TRAIN


65


Package 2Corporate income tax and incentives reform

68


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.


The President may advance the

scheduled reduction in the CIT rate when

adequate savings are realized from

the rationalization of fiscal incentives.

Lower corporate income tax

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- 14 investment promotion agencies

- 136 investment incentive laws and 200 non-investment incentive laws

- 546 ‘ecozones’ and freeports

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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.

We have a complex tax incentives system.


● Firms with no incentives pay the regular rate of 30% of net taxable income

● Firms with incentives pay between 6% and 13%

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For example, almost all of the 90,000 SMEs pay the regular 30% rate.

Source: DTI and TIMTA

Resulting in huge inequity and “wasted” incentives

2% of 2017 GDP


Fair and accountable tax incentives system

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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.

Package 2


Package 2+Tobacco and alcohol excise taxes

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75

UHC annual cost and fund source


76

Tax rates under Congress-approved bill on tobacco tax

Cigarettes for pack of 20 (in pesos per pack)

Heated tobacco products for pack of 20 (in pesos per pack)


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Tax rates under Congress-approved bill on tobacco tax

Vapor products (in pesos)


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DOH-DOF and Sen. Pacquiao’s proposal on alcohol tax

Fermented liquors – increase specific tax (in pesos)


79


Distilled spirits – increase ad valorem and specific tax (in pesos)


80


Sparkling wines/champagnes – increase specific tax per liter (in pesos)


81


Still wines and carbonated wines – increase specific tax per liter (in pesos)


82

Total revenue estimate (in PHP billion)


Package 3Property tax and valuation reform

83


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


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)


E. Rodriguez Jr. Ave – C5, Quezon City

✓SMV: Php35,000 per square meter (FY 2017)*

✓SZV: Php100,000 (CR) (2012)


*Under TRO (April 2017)

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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


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

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Package 4Passive income tax (PasIT) and financial intermediary tax (FIT)

91


Multiplicity of rates: investment driven by tax and not by risk

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 (41 special laws)95


Comparison between the current and proposed systems

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Special laws

There are 41 laws outside the NIRC on passive income. Tax reform will repeal 31 of them (hopefully)

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Reform as bridging the future

Source: https://www.pinterest.com/explore/social-stratification/133133

https://www.pinterest.com/explore/social-stratification/


Source: https://scottdeutschtalks.files.wordpress.com/2016/05/who-wants-change.jpg134

Reform coalitions needed to understand the reformas a package


Thank you

Photo: IRRIPhotos: IIRI

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