Diokno: tax reform by end of 2016, construction mode after

Aika Rey

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Diokno: tax reform by end of 2016, construction mode after
According to Budget Secretary Benjamin Diokno, tax reform will be realized mid-2017 at the latest, while infra will be ramped up for the next 6 years

MANILA, Philippines – Budget Secretary Benjamin Diokno said that the long-awaited reform on personal and corporate income taxes will be realized by the end of the year, or until mid-2017.

According to Diokno, several reforms are currently being pursued. “If we’re lucky, we’ll get it done before the end of the year. Worst case scenario is middle of next year,” Diokno said.

The DBM chief bared budget reform and expenditure programs to bankers at the 2nd Bankers General Assembly in Makati Tuesday evening, September 27.

Currently, personal and corporate income tax rates sit at 32% and 30%, respectively. According to Diokno, one of the proposals includes lowering tax rates to 25%.

Loss in revenues due to tax cuts will be offset by expanding the Value Added Tax (VAT) base, according to Diokno. “We aim to remove the exceptions not related to agriculture, health, education, and the financial sector,” he said.

Despite the cut, additional revenues amounting to P68.6 billion ($1.42 billion) in the first year of implementation is expected, while the proposed excise tax on oil will reach some P130.5 billion ($2.70 billion) in revenues.

During his State of the Nation Address, President Rodrigo Duterte vowed his administration will aggressively push for lower tax rates. Several lawmakers have already filed bills in the 17th Congress on tax reform. (READ: What bills have been refiled in the 17th Congress?)

Construction mode

Among the priorities of this administration is the ramping up of the country’s infrastructure assets.

According to Diokno, adopting an expansionary budget allows the government to spend more for infrastructure.

“The harsh truth is that despite the decent, sustained economic growth in more than a decade, the Philippines has the worst public infrastructure among its Asian peers,” said Diokno.

In the recent Global Competitiveness rankings, Philippine infrastructure is ranked 95th out of 138 for 2016-2017, down from 90th last year. Overall, the country slipped ranking, now 57th of 138 economies this year. (READ: PH slips 10 notches in 2016 WEF Global Competitiveness)

Spending in public infrastructure is increased to 5.4% of the gross domestic product of 2017 and is pegged to be as much as 7% of the GDP by 2022. In 2017 alone, public infrastructure projects amount to P860.7 billion ($17.83 billion), according to Diokno.

“We’ll be in construction mode for the next 6 years. It will not only happen here, it will take place all over the country,” Diokno said. He also pointed out that 80% of all Private-Public Partnership projects completed are in the capital region and government will reverse that.

As of July, the budget chief said that P297.9 billion ($6.17 billion) worth of PPP projects are already in the pipeline. This is equivalent to about 1.5% to 2% of the GDP in additional infrastructure investments from the private sector.

Recently, the first National Economic Development Authority board approved 9 projects worth P171.3 billion ($3.55 billion). Policy changes were introduced as well to speed up approval process. (READ: First NEDA board under Duterte okays 9 infra projects)

Diokno also said that all major projects will be geo-tagged so that progress can be easily monitored on a weekly basis using Google Maps.

Right-sizing bill

According to Diokno, part of the reforms the administration will be implementing is trimming the size of the government.

“There are a lot of people in government who should not be in government anymore,” said Diokno. “We don’t need typists anymore,” he said as an example.

He also cited the need to review some mandates of departments and agencies. Diokno argues, for example, that the Department of the Interior and Local Government has two different mandates – local government and home defense. “I can argue they should be separated,” the budget chief said.

Diokno said some agencies needed to be abolished but did not specify which.

“There are many bleeding hearts. They argue, ‘What about those who will lose their jobs?’ They are not talking about the taxpayers who are paying for these people who are not doing anything in government,” said Diokno.

According to him, the right-sizing bill has the go-signal of the President and “has been filed both in the Senate and the House of the Representatives by no less than the Speaker and the Senate President themselves.” (READ: LIST: Priority bills of the Duterte administration)

Budget priorities

Dubbed the “Budget for Real Change”, the proposed National Expenditure Program (NEP) for 2017 was submitted mid-August by the Department of Budget and Management to Congress.

The proposed P3.35-trillion ($69.39-billion) national budget for 2017 is 11.6% higher than the 2016 budget and represents 21% of the projected gross domestic product (GDP) for 2017. 

This administration raised the deficit target to 3% of GDP, compared to the previous administration’s target of 2%. In the President’s budget message, the new deficit target for the coming years will allow the administration to spend more on infrastructure, rural development, and social services.

“The planned deficit-to-GDP ratio of 3% may appear scary to some investors, but I can assure you that it is manageable, appropriate, and sustainable,” said Diokno.

“It’s time to dream right now,” he said. “The window of opportunity is the first 3 years of this government.” – Rappler.com

$1 = P48.27

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Aika Rey

Aika Rey is a business reporter for Rappler. She covered the Senate of the Philippines before fully diving into numbers and companies. Got tips? Find her on Twitter at @reyaika or shoot her an email at aika.rey@rappler.com.