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Ma. Teresa S. Habitan
Assistant Secretary, Department of Finance
FROM STABILITY TO PROSPERITY
TRANSFORMING THE PHILIPPINES THROUGH RAPID AND SUSTAINED GROWTH, FASTER POVERTY REDUCTION AND
MORE OPPORTUNITIES FOR ALL
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Vision for the Philippines
Progress in achieving the 10-point
socioeconomic agenda is advancing strongly.
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1. Macroeconomic policies
Constraints to doing business have shifted from macro to micro issues…
World Bank 2005 World Economic Forum 2017-18
Strong macroeconomic fundamentals underpin solid growth.
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1. Macroeconomic policies
2. Tax reform
Impact on Taxpayer’s
Personal Income
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2. Tax reform
Higher tax revenues funding social services and infrastructure
Lower debt has led to reduced interest payments
2. Tax reform
…Creating more fiscal space for more productive spending.
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2. Tax reform
3. Ease of doing business
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3. Ease of doing business
4. Infrastructure spending
photos from DOF, DOTr, BCDA
4. Infrastructure spending
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4. Infrastructure spending
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5. Rural development
photos from IRRI
Farmers benefit from the Rice Competitive
Enhancement Fund (RCEF)
with a 10 billion peso annual appropriation for the next six years, plus any additional
amount from rice tariff exceeding PHP 10 billion.
Rice Competitive Enhancement Fund (RCEF)
Photo: IRRI
Photo: IRRI Photo: IRRI
5. Rural development
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7. Human capital development
7. Human capital development
These are some of the specific benefits that
Filipinos will receive under UHC if fully implemented.
Results after the first three years
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GDP growth has remained robust
despite headwinds in the global economy.
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With higher growth, the Philippines is scheduled to
become an upper-middle income country in 2020.
Poverty reduction is encouraging.
28.6 27.9
26.3 27.6
21.0
15.0 14.0
12 16 20 24 28 32
Pov erty ra te (p er cen t)
First semester poverty estimates among the population
2006 basket based series 2012 basket based series
Source: PSA
Note: Poverty rates for 2021 to 2022 represent government targets.
Photo: IRRI
Rice liberalization is…
pro-consumer pro-farmer
pro-taxpayer pro-workers pro-children pro-poor
Photo: IRRI Photo: IRRI
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Rice liberalization reform is a game-changer .
The next three years will be focused on
achieving entirely the 10-point socioeconomic agenda.
Development objectives in next three years.
• The overarching objectives for the next three years are to:
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Some economic priorities in next three years
1. Accelerate implementation of the Build Build Build infrastructure program.
• We have achieved 5.1 percent of GDP spending on infrastructure and we are on track to achieve 7 percent of GDP by 2022. This is consistent with achieving an 8 percent GDP growth.
● Consider hybrid PPPs
● Improve pre-planning
● Involve LGUs in identification and strategic planning of projects
● Upgrade technical capacity of LGUs to deliver local infrastructure
● Introduce land valuation reform to resolve right- of-way conflicts
● Introduce National Land Use Plan to implement
proper zoning
Some economic priorities in next three years
2. Pursue the remaining tax reform packages to make the tax system simpler, fairer, and more efficient, while ensuring sustainable financing for the infrastructure
program. Four major packages remain:
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Package 2
Corporate income tax and incentives reform
Package 3
Property valuation Package 2+
Alcohol and e-cigarette excise
Package 4
Passive income
and financial taxes
Some economic priorities in next three years
3. Pursue economic reforms to increase FDI and jobs. Priority bills include
• Public Service Act amendment
• Retail Trade Liberalization Act amendment
• Foreign Investment Act amendment
Some economic priorities in next three years
4. Improve implementation of existing reforms such as
• National ID
• Ease of doing business
• Universal health care
• Rice liberalization
• Social programs to increase investment in health, education, and social protection
• Building resilience to climate change
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Some economic priorities in next three years
5. Improve the productivity of agriculture, including distribution of
individual titles to land reform beneficiaries.
Tax reform is about INVESTING in our country’s FUTURE.
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Why tax policy reform is needed: A bad tax system
Inflation
Special treatment and exemptions
Lack of
information (e.g., bank secrecy)
Inequity
Complexity
Inefficiency High tax rates
Narrow base (only about half of the economy
is taxed)
Cause Effect Outcome
Others
1. Motor Vehicle Users Tax
2. General amnesty with lifting of bank secrecy for fraud cases and automatic exchange of information.
3. Mining tax regime
Duterte Administration’s
Comprehensive Tax Reform Program
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Package 1
Package 1A: TRAIN Personal income tax, consumption tax, and transaction taxes (RA 10963)
Package 1B: Tax amnesty Estate and delinquency tax amnesty (RA 11213)
Package 2
Corporate income tax and fiscal incentives
Package 2+
A. Tobacco excise (RA 11346) B. Alcohol and e-cigarette
Package 3
Property valuation reform
Package 4
Passive income
and financial tax
Package 1
Tax Reform for Acceleration
and Inclusion (TRAIN)
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VAT comparison with other countries
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Widening the VAT base by reducing exemptions
The number of lines of VAT exemptions in the NIRC slightly increased due to:
i) The adoption of some special laws such as the VAT exemption of senior citizens and PWDs in the NIRC,
ii) The introduction of VAT exemptions on association dues, transfer of property if in pursuance of a plan of merger or consolidation, and hypertension, high cholesterol, and diabetes medicines, and iii) The movement of the sale of gold to BSP from a VAT zero-rated to a VAT exempt transaction.
TRAIN
Why do we need to increase oil excise?
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Excise tax on
Sweetened
Beverages (SBs)
Package 2
Corporate income tax and incentives reform
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The Philippines has the highest corporate income tax rate in the ASEAN region, yet it has low efficiency.
• For instance, Thailand collects CIT equivalent to around 4 percent of GDP on a 20 percent CIT rate, or an efficiency of 20 percent.
• Meanwhile, the Philippines collects CIT equivalent to 3.7 percent of GDP on a 30
percent rate, or an efficiency of only 12.3 percent.
• Among the ASEAN5, the
county is only ahead of
Indonesia in terms of
efficiency.
Lower corporate income tax
2021 2022 2024 2026 2028 2030
43We have a complex tax incentives system.
We grant the most
generous fiscal incentives since they are in lieu of all taxes and given forever.
Source: Individual country finance agencies and
• 13 IPAs
• 133 investment laws and 209 non-investment laws, total of 342 special laws
• 549 ecozones and
freeports
In 2017, over PHP 441 billion was granted to 3,150 firms
Source: DTI, TIMTA, and DOF estimates
45Resulting in many and unnecessary incentives
(2.8% of 2017 GDP)
● Firms with no incentives pay the regular rate of 30% of net taxable income
● Firms with incentives pay between 6% and 13% effective tax
● For example, almost all of the 90,000 SMEs pay the regular 30% rate.
In 2017, 989,166 registered firms
In addition, PHP 63 billion was lost due to possible abuse of transfer pricing
(0.4% of 2017 GDP)
Total: PHP 504 billion
(3.2% of 2017 GDP)
Package 2
Fair and accountable tax incentives system
Every peso granted as tax incentive is a peso off the budget that could have been spent for infrastructure, health, education, and social protection that benefit all,
and not only a few.
Package 2+
Alcohol and tobacco excise taxes
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1. Ensure financial sustainability for health expenditure programs
2. Discourage excessive alcohol, tobacco, e-
cigarettes, and sweetened beverages consumption for better health and
social outcomes, especially among the youth and poor
3. Ensure a healthy, world
class workforce
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Funding gap after the
enactment of the RA 11346
Totals may not add up due to rounding.
Totals may not add up due to rounding.
Funding gap after the enactment of
the increase in tobacco taxes (RA 11346)
Excise tax rates of cigarettes for pack of 20 (PHP per pack) under RA 11346
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Excise tax rates of heated tobacco products for pack of 20 (PHP per pack)
Increase to 45 pesos per pack in 2020, and further increase by 5 pesos per pack per year like regular cigarettes.
a. RA 11346 b. DOH-DOF proposal and
HB 1026 as amended
10 10.5
2020 2021
onwards
5 percent indexation every
year thereafter
(10.5 in 2021)
Excise tax rates of vapor products (PHP)
10
45 50 55 60 63
0 10 20 30 40 50 60 70
RA 11346 2020 2021 2022 2023 2024
PHP
DOH-DOF
RA 11346 2020 2021 2022 2023 2024
10 4.5 5.0 5.5 6.0 6.3
30 35 40 45 47
0 10 20 30 40 50 60 70
RA 11346 2020 2021 2022 2023 2024
PHP
HB 1026 as amended
Freebase Nicotine or salt nic
DOH-DOF 2020 2021 2022 2023 2024 Total
HTPs 0.1 0.1 0.2 0.2 0.2 0.8
Vapor products 3.1 3.4 3.8 4.1 4.3 18.7
Total 3.2 3.6 3.9 4.3 4.5 19.5
Estimated incremental revenue* (PHP billions)
HB 1026 as amended 2020 2021 2022 2023 2024 Total
HTPs 0.1 0.1 0.2 0.2 0.2 0.8
Vapor Products 1.1 1.3 1.5 1.7 1.8 7.4
Total 1.2 1.4 1.7 1.9 2.0 8.2
*Additional revenues to RA 11346. Preliminary estimates. Totals may not add up due to rounding. 57
Specific excise tax rates (PHP per liter) on fermented liquors (e.g., beer) and alcopops
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40
45
50
55
61
0 10 20 30 40 50 60 70
2019 2020 2021 2022 2023 2024
PHP
DOH-DOF HB 1026 as amended
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32 34 36 39 41
0 10 20 30 40 50 60 70
2019 2020 2021 2022 2023 2024
Per ce n t
Specific excise tax rates (PHP per proof liter) on distilled spirits (e.g., brandy, rum, whiskey, and gin)
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40
45
50 55
61
0 10 20 30 40 50 60 70
2019 2020 2021 2022 2023 2024
PHP
DOH-DOF
23
35
40
45 48
52
0 10 20 30 40 50 60 70
2019 2020 2021 2022 2023 2024
PHP
HB 1026 as amended
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Ad valorem excise tax rates (NRP per proof) on distilled spirits (e.g., brandy, rum, whiskey, and gin)
DOH-DOF HB 1026 as amended
20
25 25 25 25 25
0 5 10 15 20 25 30
2019 2020 2021 2022 2023 2024
Per ce n t
20
22 22 22 22 22
0 5 10 15 20 25 30
2019 2020 2021 2022 2023 2024
Per ce n t
* Additional revenues to RA 11346. Preliminary estimates. Totals may not add up due to rounding.
DOH-DOF 2020 2021 2022 2023 2024 Total
RA 11346 15.5 22.6 26.6 32.6 31.6 128.9
Alcohol 33.3 41.8 49.9 57.7 66.3 249.0
E-cigarettes* 3.2 3.6 3.9 4.3 4.5 19.5
Total 52.0 67.9 80.4 94.7 102.4 397.4
Total revenue estimates under DOH-DOF proposal and HB 1026 as amended (PHP billions)
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HB 1026 as amended 2020 2021 2022 2023 2024 Total
RA 11346 15.5 22.6 26.6 32.6 31.6 128.9
Alcohol 16.6 19.9 23.1 26.2 29.7 115.5
E-cigarettes* 1.2 1.4 1.7 1.9 2.0 8.2
Total 33.3 44.0 51.3 60.8 63.3 252.6
Package 3
Property valuation reform
Property valuation reforms
1 Unrealized revenues and socio-economic benefits from
delayed projects
Conflicting land values result in right-of- way compensation problems
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3 Lengthy court litigations arising 4 5
from valuation disputes Projects are delayed Cost overruns
Effects of outdated land values
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Property valuation reforms
• Multiple, overlapping valuations
• Outdated valuations. Only 36.6% LGUs and 60%
RDOs have updated values.
• Costs incurred, revenues foregone: overvaluation when government pays, undervaluation when government collects
• No single agency responsible for ensuring that valuations are completed in accordance with international standards
• Absence of a comprehensive real property electronic database
Solve issues
on valuation
Property valuation reforms
Adopt international standards, rationalize the process
Establish single valuation base for taxation, benchmark for other purposes
Insulate valuation from undue politicization.
Recentralize the neglected function of LGUs; improve oversight by NG Establish comprehensive database
to support valuation function
VALUATION
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Package 4
Passive income tax and
financial intermediary tax (PIFITA)
As of 8/5/2019 5:10 PM
Goal of Package 4
The goal is to redesign financial sector
taxation to be simpler, fairer, more efficient, and revenue neutral in the short–term.
Simpler Fairer More
efficient
Revenue neutral in short-term
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Summary of issues that P4 aims to address
Complicated
tax structure Susceptible
to tax arbitrage
Uneven playing field
Inequitable distribution of the tax burden
High administrative and compliance cost
Uncompetitive and not
supportive of capital
market development
Comparison between the
current and proposed systems
Type of income/financial intermediaries/transactions
Number of
unique rates/bases (current)
TOTAL 80
A. Tax on passive income 52
1. Interest 22
2. Dividends 13
3. Capital gains/transfers 17
B. Tax on financial intermediaries 8
1. Banks and non-banks subject to GRT 5
2. FIs subject to premium tax 1
3. Other FIs subject to VAT 2
C. DST on financial transactions 20
8/29/2019 73
Number of
unique rates/bases (proposed)
40
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9
9
5
5
2
1
2
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Reform as bridging the future
Source: https://scottdeutschtalks.files.wordpress.com/2016/05/who-wants-change.jpg
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Reform
coalitions needed to understand the reform
as a package
Thank you
