The Department of Finance (DOF) is proposing the postponement to 2026 of the personal income tax reduction scheduled for next year.
The DOF also proposes expanding the goods subject to value added tax (VAT) while reducing its rate.
Both proposals are part of the agency’s fiscal consolidation and resource mobilization plan which is expected to be delivered to the incoming administration as a measure to address the country’s rising debt levels.
The measures proposed by the DOF are estimated to bring in an average of about 284 billion pesos a year to the national government.
DOF Secretary Carlos Dominguez III said the plan was imperative to “ensure that the government can continue to effectively manage its increased fiscal deficit” through ambitious spending on infrastructure, education and health, needed to spur economic growth and recovery from the COVID-19 pandemic. .
Dominguez said the DOF is ready to present the new administration with the plan he says is “essential” to help the government continue productive spending, exit pandemic-induced debt and provide substantial buffers. to respond to persistent and future economic problems. shocks.
This new series of measures aims to reverse in 10 years the additional debt of 3,200 billion pesos contracted by the government due to the COVID-19 pandemic.
The DOF noted that the Treasury Office had earlier said that to prevent further borrowing to repay debt, the government must raise at least 249 billion pesos each year in additional revenue. Borrowing again, however, will strain the country’s debt financing capacity, increase borrowing costs and endanger the country’s creditworthiness.
Valery Brion, head of the Finance Domestic Finance group, said the proposal has three parts that will need to be implemented until 2025.
Among the immediate measures that the DOF believes should be implemented are the postponement of the income tax rate reduction as well as the broadening of the VAT base.
The tax rate for those who earned more than 250,000 pesos is supposed to drop to 15-30% in 2023, from 20-32% currently, excluding those who earn 8 million pesos and more.
There is no specific proposal on reducing the VAT rate but Dominguez thinks it will return to 10% from 12% currently.
Brion said that if the new government adopted the income tax rate deferral to 2026 instead of the planned implementation in 2023, the government could collect 97.7 billion pesos a year in taxes for three years.
Broadening the VAT base and possibly reducing the VAT rate can generate 142.5 billion pesos in revenue for the government each year.
Brion said that under the proposal, the zero-rate VAT will be limited to direct exports while VAT exemptions will only be limited to education, agricultural products, health, the financial sector and services. raw foods.
Brion, however, said the government must first broaden the VAT base before considering the possibility of lowering the VAT rate.
The proposal also includes options to repeal the immediate expenditure of input VAT on capital goods under the Tax Reform for Acceleration and Inclusion Act, and to reimpose the 60-month limit to credit input VAT on capital goods.
Online advertising services, digital services and the provision of other electronic and online services, with an impact on average annual revenues of 13.2 billion pesos, would also be covered by VAT, as proposed in a draft bill approved by the House of Representatives and remains pending with the Senate, Brion said.
The proposal also includes the imposition of a single, unitary Motor Vehicle Use Charge (MVUC) rate based on the gross vehicle weight of all motor vehicles, which is expected to generate an average of 38.3 billion pesos collected each year. The repeal of the excise tax exemption on pickup trucks and the imposition of an excise tax on motorcycles will result in an average of 19.2 billion pesos in additional annual revenue.
The DOF also proposes streamlining the mining tax regime, establishing a single, streamlined tax regime for all mining deals, which is expected to generate 11.4 billion pesos on average per year.
“We are also considering imposing an export tax on mineral ore to encourage domestic value addition on mineral products,” Brion said.
Dominguez said the plan “is workable and is designed to secure the gains we made under the Duterte administration and to ensure the government can continue to make economic investments and pursue stimulus programs, maintain its credit ratings high, get out of debt faster and protect the Philippine economy from future external shocks.
Meanwhile, the National Economic Development and Development Authority (NEDA) has said the possible resurgence of the COVID-19 case is the only major threat to the economy on the home front.
Karl Kendrick Chua, secretary for socio-economic planning, said the pandemic remains the main local risk, as he cited more 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 this is the most important, to accelerate,” Chua told Kapihan sa Manila Bay.
Chua also said that while Alert Level 1 is sufficient for now in terms of reopening the economy, about 20% of the country is still in Alert Level 2 because the vaccination rate of some local government units is below the threshold.