DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE. · 2019. 8. 27. · DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE. 5 1. Macroeconomic policies Constraints to doing business have shifted from

DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.

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2

Vision for the Philippines


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

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5

1. Macroeconomic policies

Constraints to doing business have shifted from macro to micro issues…

World Bank 2005 World Economic Forum 2017-18


Strong macroeconomic fundamentals underpin solid growth.

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BB-

BB

BB+

BBB-

BBB

BBB+

0

0

0

0

0

0

0

0

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


Lower debt has led to reduced interest payments

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2. Tax reform


…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


4. Infrastructure spending

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photos from DOF, DOTr, BCDA



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5. Rural development

photos from IRRI


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


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.


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.


Photo: IRRI

Rice liberalization is…

pro-consumerpro-farmerpro-taxpayerpro-workerspro-childrenpro-poor

Photo: IRRI

Photo: IRRI

3232

Rice liberalization reform is a game-changer.


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


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


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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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.

4040


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


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


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.


Lower corporate income tax

582021 2022 2024 2026 2028 2030


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


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)


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


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


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.


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


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

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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

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* 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)

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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


Package 3Property valuation reform

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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

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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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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.

Package 4Passive income tax and

financial intermediary tax (PIFITA)

As of 8/5/2019 5:10 PM


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


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

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Reform as bridging the future

Source: https://www.pinterest.com/explore/social-stratification/101101

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

Source: https://scottdeutschtalks.files.wordpress.com/2016/05/who-wants-change.jpg102

Reform

coalitions

needed to

understand

the reform

as a package


Thank you

Photo: IRRIPhotos: IIRI

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Documents

DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE. · 2019. 8. 27. · DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE. 5 1. Macroeconomic policies Constraints to doing business have shifted from