DOF: Sin tax reform also in the pipeline

Chris Schnabel

This is AI generated summarization, which may have errors. For context, always refer to the full article.

DOF: Sin tax reform also in the pipeline
The Department of Finance wants to raise taxes on tobacco and alcohol, as well as sweetened beverages

MANILA, Philippines – With the long march to overhauling the country’s nearly 3-decade-old tax system underway, the government is planning to introduce more measures next year.

The initial package of reforms, which concentrates on taxes that affect individuals, had been submitted to the House of Representatives on Monday, September 26. Deliberations on it are expected to begin after lawmakers finish tackling the 2017 national budget.

“We submitted it last Monday and it’s now in the hands of Congress so we’ll work with them to have it passed as soon as we can in 2017, so that people will feel the impact sooner rather than later,” said Finance Undersecretary Karl Kendrick Chua.

He added that the most optimistic estimate for the package to be passed is early next year, with implementation to begin in the middle of 2017. The latest it could get passed would probably be in the last part of 2017, with implementation in 2018.

“The idea here is we have to work together with Congress to make the hearings more efficient, provide data and evidence, and consult with people so that we can get this package passed as soon as possible,” Chua explained.

The DOF's proposed individual income tax schedule as submitted to congress for the first and second years of implementation.

The Department of Finance (DOF) estimates that the initial package of reforms would cost the government P173.8 billion in lost revenue.

But this would be offset by measures such as the expansion of VAT coverage and the increase in fuel excise tax which would come out to around 1% of GDP – equivalent to around P200 billion by 2018. 

The DOF said subsidies would be set aside for the sectors to be affected by the new fuel prices arising from higher excise tax on fuel.

A quarter to a third of the net gain through the proposed reforms would also go to social programs.

‘Tax reform for a healthy Philippines’

The proposal already submitted to Congress is just the first of 4. Chua said the next package to be submitted will focus on increasing government revenue and will be a “tax reform for a healthy Philippines.”

Among the measures to be included are higher taxes on alcohol and tobacco – the so-called sin tax – and a new tax on sweetened beverages.

“The reality is that even with the sin tax, our excise burden for cigarettes is still one of the lowest in the region and the world, and clearly, tobacco has serious health effects,” Chua said.

“The World Bank and other international organizations typically want to see excise tax that [is] at least half of the retail price, but we are not yet there.”

Chua added that the DOF will wait for the sin tax to fully mature before adjusting the rate.

“The final increase of the sin tax will be in 2017 so we don’t want to propose a new tax while it hasn’t fully matured. Once fully mature it will increase by 4% and then we will review and see how we can improve on that,” he explained.

The DOF, he added, wants to get all tax reform packages implemented by 2019.

Gathering input

Chua was speaking on the sidelines of the 2016 Philippine Tax Congress, which gathered DOF officials, lawmakers who advocated for tax reform, and representatives from the private sector to air their thoughts on the proposed plan.

Among the suggestions was the inclusion of a measure that would ease the tax burden on micro, small, and medium enterprises or MSMEs.

“I didn’t see small business tax reform in package one, and I hope it can be added to it or in the succeeding packages,” said Senator Paolo Benigno Aquino IV, who filed a bill on the matter, which he said he is being reviewed by the DOF.

Under Aquino’s proposed law, MSMEs’ tax would be much simpler, with an option for a flat rate and a simplified payment process.

Meanwhile, House Deputy Speaker Romero Quimbo said he supports the initial package, but expressed concern over what he described as a “paradigm shift.”

“At this point in time, it is something we really have to look at because if you look at the impact of raising excise tax on fuel, particularly diesel, it will have a significant impact on the basket of consumption of ordinary Filipino families,” Quimbo said.

“This is a very bold undertaking on the part of the new administration to have this shift and [it] is worth trying. We strongly support the Department of Finance. We just need to make sure that we don’t unburden the middle class only so that we shift that burden onto the poor.” – Rappler.com

Add a comment

Sort by

There are no comments yet. Add your comment to start the conversation.

Summarize this article with AI

How does this make you feel?

Loading
Download the Rappler App!