Dindo Manhit, President of the Stratbase ADR Institute
At the opening of the 18th Congress in July, President Duterte and his economic managers called on the members of the Senate and House of Representatives to immediately pass the remaining packages of the Comprehensive Tax Reform Program, especially the measure that would gradually lower corporate income tax and rationalize fiscal incentives.
The Department of Finance (DOF) was hopeful that priority tax reform packages would be passed by the end of 2019, especially after the President gave direct orders in his State of the Nation Address. But before Congress went on a month-long Yuletide break, only one measure among all the tax reform packages was able to hurdle the bicameral conference committee level: the bill increasing excise tax for alcohol products and e-cigarettes. It has been approved by the bicameral committee and will now be sent to the President for signature.
At the start of the year, the Department of Health and the DOF were looking at this revenue measure to reduce the P75-billion funding gap required in 2020 for the effective implementation of the Universal Health Care (UHC) Act. The DOF had initially estimated that additional excise tax imposed on alcohol and heated tobacco and vapor products would generate up to P47.9 billion additional revenues next year. Finance undersecretary Karl Chua said the House-approved version on alcohol excise tax passed last August was not enough and could generate only around P17 billion on the first year of implementation.
Health advocates and other non-government organizations such Action for Economic Reforms were counting on the Senate to increase the excise rates to yield P47 billion in revenues. Unfortunately, the original version of Senate Bill No. 1074, which aimed to levy higher taxes on alcoholic products, was not carried in the approved version.
The approved bicameral version, according to DOF estimates, will generate only P22.2 billion incremental revenues from alcohol and e-cigarettes during the first year of implementation. But due to an amended provision exempting specific prescription medicines from value-added tax, revenues from the measure will in fact decrease by P5.2 billion, for a total of P17.1 billion worth of net incremental revenues for 2020.
Meanwhile, the fate of the other tax reform measures such as the Corporate Income Tax and Incentives Reform Act (Citira) bill and the Passive Income and Financial Intermediary Act remain uncertain as we end 2019. Both bills have already been approved on third reading in the House last September. The Department of Trade and Industry is hoping that a new version of the Citira bill will be filed in the Senate early next year to address the “specific needs” of companies fearing increased costs once tax incentives have been rationalized. The new version will hopefully resolve contentious issues to facilitate the passage of the bill.
Lawmakers have prioritized bills such as the establishment of Malasakit Centers in government hospitals and the Salary Standardization Law to increase the salaries of government workers by tranches until 2023. However, the economic reform bills that had been pending since the 17th Congress were not given as much attention as these “populist” bills. These include measures that aim to amend economic-related laws, such as the Foreign Investment Act, Public Service Act and Retail Liberalization Act.
The House passed on third reading the bill amending the Foreign Investments Act of 1991 last September; it seeks to lift restrictions imposed on the professional practice by foreigners in the country. Amendments to the Public Service Act are still being debated on, while amendments to the Retail Trade Liberalization Act have been approved at the committee level. Amendments to the Public Services Act are expected to pave the way for the liberalization of investments in utilities, allowing majority ownership by foreign entities in public utilities. On the other hand, the bill proposing to amend the Retail Trade Liberalization Act seeks to do away with barriers to foreign investments by easing equity and capitalization requirements to encourage a more competitive investment climate. The said economic reform bills are still pending at the Senate committee level.
The big challenge is for legislators to refocus priorities on economic reforms rather than on populist bills. These key measures can help attract more investments and stimulate economic growth. We need to prioritize the passage of economic reforms to improve market competition and simplify regulation to boost trade and investments. As Finance Secretary Carlos Dominguez III stressed during the budget hearings in the Senate, the passage of the remaining tax reform packages and the three key economic reform bills are crucial in helping secure an “A”credit rating for the Philippines.
For 2020 onward, our legislators should put tax and economic reform measures at the top of their legislative priorities. These are essential to creating a vibrant economic and investment climate that would boost business and consumer confidence, create jobs and promote inclusive development.
This article was originally published in the Philippine Daily Inquirer. Image Source: Michael Varcas / philstar Global.