Electronic income

Postponement of personal income tax cut, tax hike to help Marcos administrator settle PH debt

Metro Manila (CNN Philippines, May 25) — The Ministry of Finance has recommended boosting tax collection efforts under the new government of Ferdinand “Bongbong” Marcos to help settle the country’s debt which has soared under the administration of President Rodrigo Duterte.

Citing the Office of the Treasury, the DOF says the state needs to raise at least £249billion in revenue a year to pay off the country’s £3.2trillion in additional debt.

RELATED: PH debt hits new high of ₱12.68T in late March

With this, the agency presented a “fiscal consolidation and resource mobilization plan” consisting of three “fair, efficient and corrective” packages – implemented each year from 2023 to 2025. The packages are expected to yield an annual average of £349.3 billion.

Package 1: to be implemented in 2023

The first package, which is expected to start next year, has the most features and is expected to generate $247.8 billion in revenue for the period.

Among the proposed measures is the three-year deferral of the personal income tax cut under the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

Under this law, people earning ₱250,000 or less per year are exempt from paying this tax, while different income groups will see a reduction in tax rates commensurate with their annual earnings.

The DOF says this deferral could generate an annual average of £97.7 billion in revenue from 2023 to 2025.

The package also aims to repeal Value Added Tax (VAT) exemptions but retain them for sectors such as education, agricultural products, health and raw foods – a move that is expected to pay the government 142 £.5 billion a year.

The agency has also proposed a 12% VAT on digital service providers, including those offering online advertisements and the provision of other electronic and online services. This could translate to revenue of £13.2 billion.

Also included are gaming taxes and fees, specifically a mandatory casino admission fee with a flat rate of ₱3,500 and a 5% tax on gross gaming revenue from electronic betting activities. The estimated revenue from these would be £13.1 billion.

The other features of the first package and their expected revenues are:

– Motor vehicle use tax reform (£38.3bn)

– Repeal of excise tax exemption on pickup trucks, imposition of excise tax on motorcycles (₱19.2 billion)

– Streamlined mining tax regime (₱11.4 billion)

– Excise tax on single-use plastics (₱1 billion)

The DOF has also proposed the following measures, but has not yet revealed their average earnings:

– Repeal of the immediate expenditure of input VAT on capital goods

– Excise tax on luxury goods

– Law on the taxation of passive income and financial intermediaries, aimed at simplifying and harmonizing the taxation of passive income, financial services and transactions

– Real Estate Valuation and Valuation Reform Act, which will adopt internationally accepted valuation standards and professionalize real estate valuation

The stricter implementation of income tax collection for social media influencers, which also includes clear monitoring guidelines, was also presented.

Packages 2 and 3: to be implemented from 2024

Meanwhile, the second package aims to raise £126.8 billion for 2024.

This includes health tax reform, specifically taxing alcopops in the same way as fermented liquors; increase the excise tax on cigarettes and e-cigarettes; and apply a unit rate of ₱12 per liter on sugary drinks. These could fetch ₱91.4 billion in total.

The ministry also suggested “indexation” of the petroleum excise tax, reform of the coal excise tax, and repeal of Executive Order 972 or the Coal Development Act of 1976. .

These involve raising the excise tax on petroleum by ₱1 per liter for at least three years and the excise tax on domestic and imported coal. The government could collect ₱35.4 billion with these measures.

The DOF also recommended a tax on cryptocurrencies and strengthening the Bureau of Internal Revenue’s ability to conduct transfer pricing audits.

For 2025, when the third package will be implemented, the agency has proposed a tax on carbon emissions.

What happens if these packages are not executed?

The agency warned that “no or diluted” tax reform could lead to an unsustainable level of debt and deficit to maintain government spending, which could lead to credit rating downgrades.

Such downward revisions by debt watchers could make foreign borrowing more expensive for the Philippine government.

This, coupled with low public spending to maintain the budget deficit, could lead to a lower budget for infrastructure and social services.

Ultimately, the DOF warned that less spending could dampen growth. Coupled with a high debt-to-gross domestic product ratio, the agency says this could lead to financial and economic crises for the Philippines.

RELATED: PH economy beats expectations with 8.3% growth in first quarter

At the end of March, the debt/GDP ratio already stood at 63.5%, already above the international threshold of 60%.

“Failure to pursue a program of fiscal consolidation and resource mobilization could have serious and growing consequences for our financial and economic health. We are optimistic that the new administration and our next group of lawmakers will recognize the importance and urgency of these measures and implement them as soon as possible,” said Chief Financial Officer Carlos Dominguez III.

Dominguez also expressed confidence that the Marcos administration will put its “strong mandate” to good use by pursuing “critical reforms” like the DOF’s proposed program.