MANILA, Philippines – President Rodrigo Duterte certified as urgent House Bill (HB) Number 5636, which contains the first batch of tax reforms being proposed by the Department of Finance (DOF).
Finance Assistant Secretary Paola Alvarez made the announcement on Monday, May 29, just 6 days since the House began the plenary deliberations on the Duterte tax reform package.
She said the President certified HB 5636 as urgent following the appeal of Finance Secretary Carlos Dominguez III.
This means the House may immediately subject the bill to 3rd reading once lawmakers approve it on 2nd reading any time this week. Bills that are certified as urgent do not follow the “3-day rule” between the 2nd and 3rd readings.
Alvarez, the daughter of Speaker Pantaleon Alvarez, quoted a portion of Executive Secretary Salvador Medialdea’s letter to her father on Monday.
“We are transmitting this letter of President Rodrigo Roa Duterte certifying to the necessity of the immediate enactment of House Bill Number 5636 (the proposed Tax Reform for Acceleration and Inclusion Act),” Alvarez quoted Medialdea as saying.
Alvarez also quoted part of a separate letter sent by Duterte to Senate President Aquilino Pimentel III.
“The benefits to be derived from this tax reform measure will sustainably finance the government’s envisioned massive investments in infrastructure thereby encouraging economic activity and job creation, as well as fund the desired increase in the public budget for health, education, and social programs to alleviate poverty,” said Duterte.
Under HB 5636, the maximum rate of personal income tax will be reduced over time from the current 32% to 25%, except for high income earners. (READ: Duterte’s tax reform: More take-home pay, higher fuel and auto taxes)
Those earning P250,000 or below annually will be exempted from paying income taxes. The mandated 13th month pay up to P82,000 as well as other bonuses will still be tax-free.
The “ultra-rich,” who comprise 0.1% of taxpayers, will be levied a higher rate of 35% from the current 32%.
The measure, however, also proposes higher excise taxes on refined petroleum products and automobiles, except for buses, trucks, cargo vans, jeeps, jeepney substitutes, and special purpose vehicles.
An additional P10 tax per liter of volume capacity on sugar-sweetened beverages and carbonated drinks will also be imposed. (READ: FULL TEXT: Sugar-sweetened beverage taxes promise P47B revenue – Suansing)
HB 5636 also proposes the lifting of the value-added tax exemptions for certain sectors, causing other lawmakers to tag the tax package as “anti-poor.”
The House leadership was originally targeting to have HB 5636 approved on 2nd reading before it adjourns session this week. But Dominguez wanted the President to certify the measure as urgent so the bill may be passed on 3rd reading as well.
Congress will resume session on July 24, the day Duterte will deliver his 2nd State of the Nation Address.
‘Dire consequences’ without tax reform bill
Dominguez warned there will be “dire consequences” if Congress does not pass the tax reform bill soon.
He reasoned HB 5636 was designed to support the Duterte administration’s vision for a “golden age of infrastructure,” attract investments, create jobs, cut the poverty rate from 21.6% to 14%, and transform the Philippines into an upper middle-income economy at the end of the President’s term.
According to Dominguez, failure to pass HB 5636 into law would lead to an “unsustainable fiscal position.”
“[This], in turn, could trigger a credit rating downgrade, possibly costing the government an extra P30 billion in annual debt servicing and P100 billion more in higher borrowing costs for the public,” he said.
A total of P157.2 billion in government revenues is estimated to be generated from the tax reform package in its first year of implementation alone. (READ: FULL TEXT: Revenue from tax reform to improve Filipinos’ lives – Cua)
According to Dominguez, the money will be used to fund Duterte’s infrastructure and social protection projects.
“To achieve these objectives, the administration plans to increase the budget for infrastructure from P795 billion in 2016 to P1.832 billion in 2022 to support the Golden Age of Infrastructure, the budget for education from P551 billion to P1.269 billion, the budget for health from P133 billion to P272 billion, and the budget for social protection, welfare, and employment from P240 billion to P509 billion,” he said.
“To sustainably finance these massive investments in infrastructure and in the people, tax policy reform will be crucial alongside tax administration and budget reforms,” he added.
Read the full text of the letters sent by Duterte and Medialdea to Pimentel and Alvarez below: